Chapter 20

Question 1

physical capital

Answer 1

“capital”

Consists of manufactured productive resources such as equpiment, buildings, tools, and machines

Question 2

human capital

Answer 2

The improvement in labor created by education and knowledge that is embodied in the workforce

Question 3

derived demand

Answer 3

Demand for the factor is derived from the firm’s output choice

Question 4

Difference between factor and input

Answer 4

Factor of production earns income over time from repeadedly selling it’s efforts

Input is used in the production process

Question 5

Owning stock is an example of what?

Answer 5

physical capital

Question 6

factor distribution of income

Answer 6

The division of total income among labor, land, and capital

Question 7

proprietors income

Answer 7

the earnings of people who own their own businesses

Question 8

four factors of production

Answer 8

Labor

Land

Physical capital

Human capital

Question 9

Value of the marginal product (VMPL)

Answer 9

The value of the additional output generated by employing one more unit of that factor

Question 10

Value of the marginal product curve

Answer 10

Shows how the value of the marginal product of that factor depends on the quantity of the factor employed

Question 11

3 main factors that cause the factor demand curve to shift

Answer 11

Changes in prices of goods

Changes in supply of other factors

changes in technology

Question 12

Equilibrium value of the marginal product

Answer 12

The additional value produced by the last unit of that factor employed in the factor market as a whole

Question 13

rental rate

Answer 13

The cost, explicit or implicit, of using a unit of that asset for a given period of time

Question 14

Marginal productivity theory of income distribution

Answer 14

Every factor of production is paid its equilibrium value of the marginal product

Question 15

compensating differentials

Answer 15

Wage differences across jobs that reflect the fact that some jobs are less pleasant than others

Question 16

Unions

Answer 16

Organizations of workers that try to raise wages and improve working conditions for their members by bargaining collectively

Question 17

worker turnover

Answer 17

the frequency with which an employee leaves a job voluntarily

Question 18

efficiency wages

Question 19

Efficiency-wage model

Answer 19

Some employers pay an above-equilibrium wage as an incentive for better performance

Question 20

time allocation

Answer 20

How many hours to spend on different activities

*A result of decisions about labor supply*

Question 21

Leisure

Answer 21

Time available for purposes other than earning money to buy marketed goods

Question 22

Individual labor supply curve

Answer 22

Shows how the quantity of labor supplied by an individual depends on that individual’s wage rate

Question 23

Substitution effect dominates income effect

Answer 23

Individual labor supply curve slopes upward

Question 24

Income effect dominates substitution effect

Answer 24

Individual labor supply curve slopes downward

Question 25

time allocation budget line

Answer 25

Shows an individual’s trade-off between consumption of leisure and the income that allows consumption of marketed goods

Question 26

optimal time allocation rule

Answer 26

An individual should allocate time so that the marginal utility gained from the income earned from an additional hour worked is equal to the marginal utility of an additional hour of leisure

Question 27

Backward-bending individual labor supply curve

Answer 27

An individual labor supply curve that slopes upward at low to moderate wage rates and slopes downward at higher wate rates