Factor Markets Flashcards
What is a factor market
A market of resources, market of inputs that are used to produce outputs
Is the labor market a factor market
Yes
What is the marginal revenue product of labor
The marginal product of labor times the marginal revenue. In a perfectly competitive market this equals the wage
What is a derived demand
When demand for one factor product like labor depends on the demand for other goods
How do you calculate an individuals wage rate
By the relative price if leisure and consumption
When will people work less or more when wages rise
At first the substitution effect dominates and thus people work more for the higher wage but at a point the income effect becomes dominant and people work less and less as consumption becomes relatively cheap while leisure stays as attractive
When does the labor market reach equalibrium
When the wage results in the labor supplied being equal to the labor demanded
Why is the labor demand curve flatter in the long run
Because firms can substitute labor for capital
How does the supply curve of unimproved land look
It is vertical as there is only as much land available at the moment
What is monopsony power
When a buyer affects the market price by the quantity purchase
When is marginal expenditure equal to price
When buyers lack power, monopsonists always pay less
When does a monopsonist maximize profits
When the marginal revenue product of the input equals the marginal expenditure on it. This leads to less being bought at a lower price than in competition between consumers
Why might unions supply a decreased amount of labor
Because they can act like a monopoly to increase revenue by maximizing surplus through selected scarcity
What is a bilateral monopoly
When there are concentrations of power in both sides of the market. few buyers and few sellers
What happens to the optimal quantity of labor when prices rise
It sinks
