AP®︎ Microeconomics: Unit 5 Flashcards

The market where households sell productive resources to firms for income.

Land earns rent, labor earns wages, capital earns interest, and entrepreneurship earns profit.

A downward-sloping curve showing firms hire fewer workers at higher wages, other things equal.

An upward-sloping curve showing workers supply more labor at higher wages, other things equal.

Adding variable inputs to fixed inputs eventually causes each additional input to produce less extra output.

The total quantity of output produced by a given number of workers or other inputs.

The additional output produced by hiring one more unit of a variable input.

As more workers are hired, extra output and extra revenue from each additional worker eventually fall.

Payments made for productive resources, such as wages, rent, interest, and profit.

The wage and employment level where quantity of labor supplied equals quantity demanded.

Surplus: wages above equilibrium create unemployment; shortage: wages below equilibrium create unfilled jobs.

Cheaper substitutes raise demand for the other input; costlier complements reduce demand for both.

Labor supply shifts with worker availability, training, regulations, alternatives, leisure preferences, demographics, and culture.

Demand for a resource based on demand for the goods or services it helps produce; labor demand therefore shifts with product demand, output price, productivity, and input prices.

Many firms hire identical workers, each firm is a wage taker, and labor is hired at the market wage.

A firm that must accept the market wage because its hiring is too small to affect it.

Changes in market labor supply or demand change the equilibrium wage, which shifts each firm's horizontal marginal resource cost curve.

Use inputs so the marginal product per dollar spent is equal across all resources.

Choose each input so its marginal revenue product equals its marginal resource cost.

An individual firm can hire any number of workers at the market wage.

The additional revenue generated by employing one more unit of a resource; it is found by multiplying marginal product by marginal revenue, and in perfectly competitive output markets it equals marginal product times price.

Firms hire more labor when marginal revenue product exceeds marginal resource cost and stop where marginal revenue product equals marginal resource cost; in a perfectly competitive labor market, this means hire until MRP equals the wage.

Labor demand slopes downward because firms hire fewer workers at higher wages and because of diminishing marginal returns, while labor supply slopes upward as higher wages attract more work from workers.

The additional cost of hiring one more unit of a resource; in a perfectly competitive labor market, it equals the wage.

A labor market with one buyer of labor and many sellers of labor.

Single large employer, imperfect competition, wage-making power, and upward-sloping labor supply to the firm.

A firm with enough buying power to influence the wage it pays workers.

An upward-sloping curve showing higher wages are needed to attract more workers.

Hire labor until marginal revenue product equals marginal factor cost.

Choose labor where MRP equals MFC, then read wage from the labor supply curve.

Monopsony hires where MRP = MFC and pays from supply; competition hires where MRP = supply.

A monopsonist hires fewer workers and pays a lower wage than a competitive labor market.

A binding wage floor can raise wages and increase employment up to the relevant labor supply quantity.

The cost of one more worker, including higher wages paid to all existing workers.

A firm's labor demand curve is its marginal revenue product curve; on the individual firm graph, the downward-sloping MRP curve intersects the horizontal marginal resource cost curve at the profit-maximizing quantity of labor.