All Flashcards
What is the difference between diminishing returns and negative returns?
Diminishing returns: Output increases at a decreasing rate. Negative returns: Total output decreases.
What is the difference between Marginal Product (MP) and Marginal Revenue Product (MRP)?
MP is the additional output from one more worker. MRP is the additional revenue from that worker (MP * Price).
Compare the product market and the factor market.
In the product market, households demand goods/services and firms supply them. In the factor market, firms demand resources (factors of production) and households supply them.
Analyze a downward-sloping labor demand curve.
As wages decrease, the quantity of labor demanded by firms increases, and vice versa.
Analyze an upward-sloping labor supply curve.
As wages increase, the quantity of labor supplied by individuals increases, and vice versa.
What does the intersection of the labor demand and supply curves represent?
The equilibrium wage rate and the equilibrium quantity of labor in the market.
How does a shift in the labor demand curve affect the equilibrium wage?
A rightward shift increases the equilibrium wage; a leftward shift decreases it.
How does a shift in the labor supply curve affect the equilibrium wage?
A rightward shift decreases the equilibrium wage; a leftward shift increases it.
Analyze the graph of Marginal Product (MP) and Total Product (TP).
MP eventually diminishes and becomes negative, causing TP to increase at a decreasing rate and then decrease.
What is a factor market?
Market where businesses buy factors of production (land, labor, capital, entrepreneurship) from households.
Define 'derived demand'.
Demand for a resource that is derived from the demand for the product it helps create.
What is Marginal Resource Cost (MRC)?
The cost of hiring one more unit of a resource. For labor, it's the wage rate.
Define Marginal Product (MP).
The additional product produced by hiring one more worker.
What is Marginal Revenue Product (MRP)?
The additional revenue generated by hiring one more worker. Calculated as MP * Price.
What is Total Product (TP)?
The total amount of product produced by a certain number of workers.
What is the Law of Diminishing Marginal Returns?
As you add more of a variable resource to a fixed resource, the extra output from each new input will eventually decrease.
Define 'rent' in the context of factor markets.
Payment for the use of land, a factor of production.
Define 'wage' in the context of factor markets.
Payment for labor, a factor of production.
Define 'interest' in the context of factor markets.
Payment for the use of capital, a factor of production.
Define 'profit' in the context of factor markets.
Payment to entrepreneurship, a factor of production.