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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.
How does derived demand affect lithium prices if electric car demand surges?
Increased electric car demand leads to increased demand for lithium, raising its price.
How does the Law of Diminishing Marginal Returns apply to a bakery with a fixed number of ovens?
Adding more bakers to a bakery with one oven will eventually lead to smaller increases in output as bakers compete for oven space.
A firm is deciding whether to hire another worker. What should they consider?
They should compare the Marginal Revenue Product (MRP) of the worker to the Marginal Resource Cost (MRC).
Explain how MRP relates to MP.
MRP is calculated by multiplying MP by the price of the product. If MP decreases, so does MRP.
A company's MRP is $40, and MRC is $30. Should they hire more workers?
Yes, because MRP > MRC, hiring more workers will increase profit.
A company's MRP is $20, and MRC is $30. Should they hire more workers?
No, because MRP < MRC, hiring more workers will decrease profit.
How does the demand for houses affect the demand for carpenters?
An increase in the demand for houses will increase the demand for carpenters (derived demand).
How does increased automation in factories affect the demand for labor?
Increased automation may decrease the demand for some types of labor, as machines replace workers.
How does a minimum wage above the equilibrium wage affect the labor market?
It creates a surplus of labor (unemployment) because the quantity of labor supplied exceeds the quantity demanded.
How would increased education levels in a country affect the supply of labor?
Increased education levels would likely increase the supply of skilled labor.
How does increased immigration affect the labor supply?
Increased immigration generally increases the supply of labor.