Questions and Answers
What is a resource market?
A market that provides one of the resources for producing goods and services: labor, capital, and land.
What does marginal revenue product (MRP) measure?
The additional revenue that an additional resource can create for a firm.
What is marginal factor cost (MFC)?
The additional cost of an additional unit of a resource.
What is a monopsonist?
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What is the value of marginal product (VMP)?
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In a perfectly competitive resource market, resources are paid less than their marginal revenue product.
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How do firms allocate their budgets on resources?
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What is economic rent?
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What are transfer earnings?
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Who are the buyers and sellers of resources?
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How are resource prices determined?
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What does a perfectly competitive firm do regarding resource hiring?
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Firms purchase resources in such a way that they ________ _________.
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Households sell resources in order to ____________ _________.
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Study Notes
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.
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Description
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!
