AP®︎ Microeconomics: Topic 5.1 Flashcards

Master key terms and definitions for Topic 5.1 of AP Microeconomics – Introduction to Factor Markets to help you prep for quizzes and the AP exam.

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Term

Factor Market / Resource Market

Definition

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

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Factor Market / Resource Market
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The market where households sell productive resources to firms for income.

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Factors of Production and Factor Payments
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Land earns rent, labor earns wages, capital earns interest, and entrepreneurship earns profit.

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Derived Demand
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Demand for a resource based on demand for the goods or services it helps produce.

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

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

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Law of Diminishing Marginal Returns
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Adding variable inputs to fixed inputs eventually causes each additional input to produce less extra output.

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Marginal Resource Cost (MRC)
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The additional cost of hiring one more unit of a resource, usually the wage for labor.

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Total Product (TP)
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The total quantity of output produced by a given number of workers or other inputs.

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Marginal Product (MP)
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The additional output produced by hiring one more unit of a variable input.

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

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Marginal Revenue Product (MRP)
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The extra revenue from one more resource unit, found by multiplying MP by output price.

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Profit-Maximizing Hiring Rule
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Firms hire more resources when MRP exceeds MRC and stop where MRP equals MRC.

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

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