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22 Cards in this Set
- Front
- Back
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Review Page 394
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Now!
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Factors of Production
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The inputs used to produce goods and services
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What are the three most important Factors of Production?
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Labor
Land Capital |
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Factor Markets do resemble the markets for goods and services the only difference is that
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they are derived demands--a firms demand for a factor of production is derived from its decision to supply a good in another market.
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Production Function
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The realtionship between the quantity of inputs used to make a good and the quantity of output of that good
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Marginal Product of Labor
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The increase in the amount of output from 1 additional unit of labor
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Diminishiing Marginal Product
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The property whereby the marginal product of an input declines as the quantity of the input increases
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Value of the Marginal Product (<b>Demand Curve for Labor</b>, Revenue generated by the next worker hired)
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The marginal product of an input * the price of the output
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Marginal Revenue Product
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The extra revenue the firm gets from hiring an additional unit of a factor of production (hiring another laborer)
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*** A competitive profit maximizing firm hires workers up to the point where the value of the marginal product of _____ = the _____
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labor = the wage
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List some things that would cause the Labor demand curve (value of marginal product) to shift
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The output price
Technological change The supply of other factors |
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The Labor supply curve shifts when people change the amount they want to work at a given wage
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Changes in Tastes
Changes in Alternative Opportunities Immigration |
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2 main facts about how wages are determined in competitive labor markets:
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1. The wage adjusts to balance the supply and demand for labor
2. The wage equals the value of the marginal product of labor |
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***Any event that changes the supply or demand for labor must change the equilibrium wage and teh value of the marginal product by the same amount because these must always be equal
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True see pg 401
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Because the demand curve reflects teh value of the marginal product of labor, in equilibrium workers receive the value of the marginal contribution to the production of goods and services
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true
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There is not a connection between productivity and real wages
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FALSE!
There is |
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Capital
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the equipment and structures used to produce goods and services
(the economy's capital represents the accumulation of goods produced in the past that are being used in the present to produce new goods and services. |
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When analyzing the price of capital you need to keep in mind 2 things
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Purchase Price
Rental Price -wage is the rental price of labor bc both are affected/determined by different economic factors |
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For both land and capital, the firm increases the quantity hired until the value of the factor's marginal product = the factor's price
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Thus, the demand curve for each factor reflects the marginal productivity of that factor
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Labor, Land, Capital each earn the value of their marginal contribution to the production process
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True
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The equilibrium rental income at any point in time equals the value of that factor's marginal product
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true
therefore, the equilibrium purchase price of a piece of land or capital depends on both the current value of the marginal product and the value of the marginal product expected to prevail in the future |
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*** Pay attention to this
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The marginal product of any factor, in turn, depends on the quantity of that factor that is available. Bc of diminishing marginal product, a factor in abundant supply has a low marginal product an thus a low price, and a factor in scarce supply has a high marginal product and a high price. As a result, when the supply of a factor falls, its equilibrium factor price rises.
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