All Flashcards
Differentiate between product and factor markets.
In product markets, households buy goods/services from firms. In factor markets, firms buy factors of production from households.
What are the key differences between perfect competition and monopsony in labor markets?
Perfect competition has many firms and wage-takers; monopsony has one buyer and wage-making power. Monopsony results in lower wages and employment.
Compare the MRC curve in perfect competition vs. monopsony.
In perfect competition, MRC is constant (horizontal). In monopsony, MRC is upward sloping and above the labor supply curve.
Compare the wage and quantity of labor in perfect competition and monopsony.
Perfect competition has higher wage and quantity of labor than monopsony.
What is Derived Demand?
Demand for a factor of production based on the demand for the final product it produces.
What is Marginal Revenue Product (MRP)?
The additional revenue generated by hiring one more worker.
What is Marginal Resource Cost (MRC)?
The cost of hiring one more worker.
What is a perfectly competitive labor market?
A market where many firms compete for workers, and workers are wage-takers.
What is a monopsony?
A market with only one buyer of labor, giving the firm wage-making power.
Define Factor Markets.
Markets where firms buy factors of production (labor, land, capital, entrepreneurship) from households.
Define Wage-Takers.
Workers or firms that cannot influence the market wage; they must accept the going rate.
Define Wage-Makers.
Firms that have the power to influence the market wage, typically due to being the sole or dominant employer.
What are Factors of Production?
Resources used to produce goods and services; typically labor, land, capital, and entrepreneurship.
Define Resource Productivity.
The amount of output produced per unit of a resource (e.g., labor).
Analyze a perfectly competitive labor market graph.
The market wage and quantity are determined by the intersection of market supply and demand for labor. Individual firms face a horizontal MRC curve at the market wage.
Analyze a monopsony labor market graph.
The MRC curve is above the labor supply curve. The monopsonist hires where MRP = MRC, but pays the wage on the labor supply curve at that quantity, resulting in lower wage and employment.
How does a minimum wage above equilibrium affect a perfectly competitive labor market graph?
It creates a surplus of labor (unemployment), shown by the quantity supplied exceeding the quantity demanded at the minimum wage.
What does the firm's demand curve for labor represent in perfect competition?
The firm's demand curve for labor is its MRP curve.