Ap Micro Chapter 29 & 30

Front 1

derived demand

Back 1

The demand for a resourcethat depends on the demand for the products it helps to produce.

Front 2

marginal product (MP)

Back 2

The additional outputproduced when 1 additional unit of a resource is employed (the quantity of allother resources employed remaining constant); equal to the change in totalproduct divided by the change in the quantity of a resource employed.

Front 3

marginal revenue product (MRP)

Back 3

The change in a firm’s totalrevenue when it employs 1 additional unit of a resource (the quantity of allother resources employed remaining constant); equal to the change in totalrevenue divided by the change in the quantity of the resource employed.

Front 4

marginal resource cost (MRC)

Back 4

The amount the total cost ofemploying a resource increases when a firm employs 1 additional unit of theresource (the quantity of all other resources employed remaining constant);equal to the change in the total cost of the resource divided by the change inthe quantity of the resource employed.

Front 5

MRP=MRC rule

Back 5

The principle that tomaximize profit (or minimize losses), a firm should employ the quantity of aresource at which its marginal revenueproduct (MRP) is equal to its marginalresource cost (MRC), the later being the wage rate in pure competition.

Front 6

substitution effect

Back 6

(1) A change in thequantity demanded of a consumer goodthat results from a change in its relative expensiveness produced by a changein the product’s price; (2) the effect of a change in the price of a resource on the quantity of the resourceemployed by a firm, assuming no change in its output.

Front 7

output effect

Back 7

The situation in which anincrease in the price of one output will increase a firm’s production costs andreduce its level of output, thus reducing the demand for other inputs;conversely for a decrease in the price of the input.

Front 8

Marginal productivity theoryof income distribution

Back 8

The contention that thedistribution of income is equitable when each unit of each resource receives amoney payment equal to its marginal contribution to the firm’s revenue (its marginal revenue product).

Front 9

elasticity of resource demand

Back 9

The sensitivity of producersto changes in resource prices is measured by the elasticity of resourcedemand. In coefficient form it is thethe percentage change in resource quantity divided by the percentage change inresource price. When Erd is greater than1, resource demand is elastic; when Erd is less than 1, resource demand isinelastic; and when Erd equals 1, resource demand is unit-elastic.

Front 10

least-cost combination

Back 10

The quantity of each resourcea firm must employ in order to produce a particular output at the lowest totalcost; the combination at which the ratio of the marginal product of a resource to its marginal resource cost (to its priceif the resource is employed in a competitive market) is the same for the lastdollar spent on each of the resources employed.

Front 11

profit-maximizing combination of resources

Back 11

The quantity of each resourcea firm must employ to maximize its profit or minimize its loss; the combinationin which the marginal revenue productof each resource is equal to its marginalresource cost (to its price ifthe resource is employed in a competitive market).

Front 12

Nominal wage

Back 12

The amount of money receivedby a worker per unit of time (hour, day, etc.); money wage.

Front 13

Real wage

Back 13

The amount of goods andservices a worker can purchase with his or her nominal wage; the purchasing power of a nominal wage.

Front 14

Purely competitive labormarket

Back 14

In this type of market:1. Many firms compete with one another in hiringa specific type of labor.2. Each of numerous qualified workers withidentical skills supplies that type of labor3. Individual firms and individual workers are“wage takers,” since neither can exert any control over the market wage rate.

Front 15

Monopsony

Back 15

A market structure in whichthere is only a single buyer of a good, service, or resource.

Front 16

Exclusive unionism

Back 16

The practice of a labor unionof restricting the supply of skilled union labor to increase the wages receivedby union members; the policies typically employed by a craft union.

Front 17

Occupational licensing

Back 17

This is often used by craftunion groups to limit competition for their services from less qualified laborsuppliers. A group of workers in a givenoccupation pressure Federal, state, or municipal governments to pass a law thatsays that some occupational group (barbers, physicians, lawyers, plumbers,etc.) can practice their trade only if they meet certain requirements.

Front 18

Inclusive unionism

Back 18

The practice of a labor unionof including as members all workers employed in an industry.

Front 19

Bilateral monopoly

Back 19

A market in which there is asingle seller (monopoly) and a singlebuyer (monopsony).

Front 20

Minimum wage

Back 20

The lowest wage employers maylegally pay for an hour of work.

Front 21

Marginal revenue productivity

Back 21

The strength of a labor demand– how far rightward the labor demand curve is located differs greatly amongoccupations due to differences in how much different occupational groupscontribute to their employer’s revenue. This revenue contribution, in turn,depends on the workers’ productivity and the strength of the demand for theproducts they are helping produce. Themarginal revenue productivity for professional athletes is therefore high. Most workers generate more modest revenue fortheir employers so their pay is lower.

Front 22

Noncompeting groups

Back 22

Collections of workers in theeconomy who do not compete with each other for employment because the skill andtraining of the workers in one group are substantially different from those ofthe workers in other groups.

Front 23

Investment in human capital

Back 23

Any expenditure undertaken toimprove the education, skills, health, or mobility of workers, with anexpectation of greater productivity and thus a positive return on theinvestment.

Front 24

Compensating differences

Back 24

Differences in the wagesreceived by workers in different jobs to compensate for nonmonetary differencesin the jobs.

Front 25

Incentive pay plan

Back 25

A compensation pay structurethat ties worker pay directly to performance. Such plans include piece rates, bonuses, stock options, commissions, andprofit sharing.

Front 26

Wage differentials

Back 26

The difference between thewage received by one worker or group of workers and that received by anotherworker or group of workers.