Microeconomics Chapter 15 Flashcards

Resource Market

• A resource market is where resources for producing goods and services are traded, specifically labor, capital, and land.
• Classified into three types: land, labor, and capital; buyers are firms while suppliers are households.

Marginal Revenue Product (MRP)

• MRP measures the additional revenue generated by hiring one more unit of a resource.
• Firms hire resources until MRP equals Marginal Factor Cost (MFC).

Marginal Factor Cost (MFC)

• MFC refers to the additional cost incurred by employing one more unit of a resource.

Monopsonist

• A monopsonist is a firm that is the sole buyer of a resource, giving it power over pricing.

Value of Marginal Product (VMP)

• VMP is identical to MRP in a perfectly competitive resource market, reflecting the value of the output produced by the last unit of resource.

Perfectly Competitive Resource Market

• In a perfectly competitive resource market, resources are compensated at rates equivalent to their marginal revenue product.

Monopsonistic Resource Market

• In a monopsonistic market, resources receive payment lower than their marginal revenue product.

Resource Allocation by Firms

• Firms budget spending on resources until the last dollar spent provides the same marginal revenue product, regardless of the resource.

Perfectly Competitive Firm

• A perfectly competitive firm tends to hire more resources in comparison to firms in monopoly or oligopoly structures.

Economic Rent

• Economic rent is the income earned above transfer earnings, representing surplus earnings.

Transfer Earnings

• Transfer earnings are the minimum required payments to resource owners to keep them from reallocating their resources to alternative uses.

Profit Maximization

• Firms seek to maximize profits through resource purchases, while households aim to maximize their income by selling resources.

Buyers and Sellers in Resource Markets

• Resource markets comprise buyers (firms seeking resources for production) and sellers (households providing resources for income).

Determination of Resource Prices

• The demand for resources by a firm is represented by its MRP curve; in competitive markets, firms hire until MRP equals MFC.

Expenditure Allocation Among Resources

• Firms allocate resource expenditures to ensure that each additional dollar spent yields consistent marginal revenue product across all resources.
• Resource supply is influenced by the income received by resource owners; payments consist of transfer earnings and economic rent.

Dive into the key terms and concepts from Chapter 15 on Resource Markets in Microeconomics. This quiz covers essential terms like resource market and marginal revenue product, providing a comprehensive review for students. Test your knowledge and prepare for exams with these flashcards!