AP Micro 18 by Savannah Julius

Quizlet

8juliuss — 2018-04-19 16:06:19 UTC

factors of production

8juliuss — 2018-04-19 16:06:51 UTC

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

Competitive Profit-Maximizing Firm

8juliuss — 2018-04-19 16:08:15 UTC

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

Production Function and Marginal Product of Labor

8juliuss — 2018-04-19 16:08:54 UTC

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

Value of Marginal Product and Demand for Labor

8juliuss — 2018-04-19 16:10:01 UTC

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

What Causes the Labor Demand to Shift?

8juliuss — 2018-04-19 16:56:57 UTC

Output price

8juliuss — 2018-04-19 16:57:05 UTC

increase in price, increase in labor demand

decrease in price, decrease in labor demand

Technological change

8juliuss — 2018-04-19 16:57:29 UTC

labor augmenting if tech creates more jobs
labor saving if tech steals jobs

Supply of other factors

8juliuss — 2018-04-19 16:57:55 UTC

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

Trade-Off Betweeen Work and Leisure

8juliuss — 2018-04-19 16:58:40 UTC

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

What Causes Labor-Supply Curve to Shift

8juliuss — 2018-04-19 16:59:25 UTC

Changes in taste

8juliuss — 2018-04-19 16:59:37 UTC

more women in workforce than before

Changes in alternative opportunities

8juliuss — 2018-04-19 16:59:58 UTC

switching occupations

attractiveness to occupations

Immigration

8juliuss — 2018-04-19 17:00:15 UTC

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

Wages

8juliuss — 2018-04-19 17:01:37 UTC

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)*

Shifts in Labor Supply

8juliuss — 2018-04-19 17:02:59 UTC

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

Shifts in Labor Demand

8juliuss — 2018-04-19 17:04:32 UTC

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

land and capital

8juliuss — 2018-04-19 17:06:09 UTC

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

Equilibrium in the Markets for Land and Capital

8juliuss — 2018-04-19 17:07:00 UTC

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

note

8juliuss — 2018-04-19 17:07:35 UTC

demand for each factor reflects marginal productivity of that labor
land, labor, and capital each earn value in their marginal contribution to production process

8juliuss — 2018-04-19 17:07:49 UTC

Linkages Among Factors of Production

8juliuss — 2018-04-19 17:08:30 UTC

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

Determinants of Productivity

8juliuss — 2018-04-19 22:10:03 UTC

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

Marginal Resource / Factor Cost

8juliuss — 2018-04-19 22:12:14 UTC

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

Determinants of Resource Demand

8juliuss — 2018-04-19 22:13:45 UTC

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

What Productivity of Resources is Affected By

8juliuss — 2018-04-19 22:14:54 UTC

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

Factor/Resource Markets

8juliuss — 2018-04-19 22:19:08 UTC

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

Calculating Least Cost

8juliuss — 2018-04-19 22:38:51 UTC

MPL / PL = MPc / Pc

or

MPL / PL = MPk / Pk

direct resources toward the larger number

Rules

8juliuss — 2018-04-19 22:40:18 UTC

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

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

economic rent

8juliuss — 2018-04-20 03:34:03 UTC

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

demand is the only active determinant of land rent

8juliuss — 2018-04-20 03:35:00 UTC

Monopsony

8juliuss — 2018-04-20 03:35:51 UTC

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

Graph

8juliuss — 2018-04-20 03:36:38 UTC

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

innate differences

8juliuss — 2018-04-20 03:38:24 UTC

distinct skill level

human capital

8juliuss — 2018-04-20 03:38:37 UTC

education, job training, experience

compensation

8juliuss — 2018-04-20 03:38:50 UTC

the more risk, the higher the wage

psychic income

8juliuss — 2018-04-20 03:39:02 UTC

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

discrimination

8juliuss — 2018-04-20 03:39:27 UTC

age, gender, sexual orientation, race, class

glass ceiling

immobility

8juliuss — 2018-04-20 03:39:45 UTC

sociological ties to an area

government interference

8juliuss — 2018-04-20 03:40:12 UTC

minimum wage laws

errors

8juliuss — 2018-04-20 13:51:49 UTC

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