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https://quizlet.com/_4pm4a0

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land, labor, capital - the inputs used to produce goods and services

capital --> rent, profit, interest

supply and demand for labor determine prices paid to workers
- labor demand is a derived demand
-----> contingent on supply and demand of the good that factor produces

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two assumptions
1. competitive labor market
- firm = wage taker
2. profit-max quantity of labor

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Production Function and Marginal Product of Labor

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Production Function and Marginal Product of Labor

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production function: relationship between input and output
- marginal product of labor (MPL)

diminishing marginal product: why the production function increases at decreasing rate

additional output gained from the first few units is larger than that gained in the last few

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Value of Marginal Product and Demand for Labor

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Value of Marginal Product and Demand for Labor

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profit from an additional worker = worker's contribution to revenue - worker's wage

value of marginal product = marginal revenue product (MRP) = MP x P
--> value of marginal product curve is the labor demand curve

downward sloping because of diminishing marginal returns

hire workers until MRP = W

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increase in price, increase in labor demand

decrease in price, decrease in labor demand

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labor augmenting if tech creates more jobs

labor saving if tech steals jobs

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the quantity available of one factor of production affects marginal product of other factors

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opportunity costs

shows different quantities of labor that workers are willing to offer employers at different wage rates

A firm's supply curve is perfectly elastic (wage taker)

supply of labor curve may slope backwards at high wages
- income effect
- substitution effect

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more women in workforce than before

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switching occupations

attractiveness to occupations

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(number of suppliers of labor)
immigration to US increases supply of labor here but decreases supply of labor from where the immigrants came from

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1. wage adjusted to balance supply and demand
2. wage equals the value of marginal product of labor

*any event that changes supply and demand for labor must change the equilibrium wage and the value of the marginal product by the same amount (since they must always be equal)*

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1. increase in supply of labor
2. surplus of labor
3. wage drops to make it more profitable to hire again
4. more workers causes marginal product to fall
5. value of marginal product falls
6. new equilibrium

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1. increase in demand for labor
2. shortage of labor
3. wage increases to entice workers
4. more workers
5. new equilibrium

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land: physical space used to create output
capital: accumulation of goods produced in the past and are being used in the present to create new goods and services

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Equilibrium in the Markets for Land and Capital

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Equilibrium in the Markets for Land and Capital

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purchase price v. rental price
(wage = rental price of labor)

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demand for each factor reflects marginal productivity of that labor

land, labor, and capital each earn value in their marginal contribution to production process

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marginal product of any factor depends on the quantity of that factor that is available

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1. physical capital: the people who work with equipment and structures produce
2. human capital: highly educated workers produce more
3. technological knowledge: workers who have access to sophisticated technology produce more

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the marginal resource cost curve is the supply of labor curve; the marginal factor cost curve is the supply of labor curve
MRC = MFC = S

profit max: MRC = MRP = Wage

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1. Product demand: an increase in demand for the product will increase the demand for labor
2. productivity: if productivity increases, demand for resources increases
3. price of other resources:

Substitute Resources - if price of substitute resource falls, it has two competing effects on demand for labor

substitute effect: if price of substitute is cheaper, the firm will use more of that resource and decrease the demand for labor

output effect: decrease in wage rate will decrease marginal cost (move right) and increase output; more workers are needed to produce increased output

Complementary Resources - when labor and machinery work together, a lower price for machine makes it easier to purchase more machinery, but there is also an increase in demand for labor

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What Productivity of Resources is Affected By

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What Productivity of Resources is Affected By

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1. quantity of other resources
2. technological progress
3. quality of a variable resource

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1. economic concepts are similar to product markets
2. demand for factor of production is derived from demand for the good/service produced from the resource
3. a firms tries to hire additional units of resource up to where MRP = MRC
4. in hiring labor, a perfectly competitive firm hires up to where MRP = wage; wages = MRC of labor
5. if you want a high wage...
... make something people will pay a lot for
... work for highly productive firm
... be in relatively short supply
... invest in your human capital
6. real wages depend on productivity
7. productivity depends on real/physical capital, human capital, labor quality, tech

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MPL / PL = MPc / Pc

or

MPL / PL = MPk / Pk

direct resources toward the larger number

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if MPL / PL > MPc / Pc, invest into LABOR
if MPL / PL < MPc / Pc, invest into CAPITAL

profit max at...
MRPL / PL = MRPc / Pc = 1

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extra income of worker receives above the minimum level they need in order to work
- receive payment beyond opportunity cost
- similar to producer surplus

perfectly inelastic because prices are fixed

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demand is the only active determinant of land rent

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demand is the only active determinant of land rent

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market in which an employer of resources has monopolistic hiring power in the factor market
1. singly purchaser of labor
2. labor is immoble
3. firm is the wage maker

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two supply curves
--> deadweight loss
similar to externality graphs

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distinct skill level

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education, job training, experience

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the more risk, the higher the wage

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might earn more in one profession over another but like the lifestyle that the other one offers

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age, gender, sexual orientation, race, class

glass ceiling

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sociological ties to an area

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minimum wage laws

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https://docs.google.com/document/d/1TBqswRZ6qGmdludgfE3uKnkNCkBa1lphYVBoJ7Nwut0/edit