Chapter+18+Markets+for+the+Factors+of+Production.JAKS

=Chapter 18. = =Markets for the Factors of Production =



Definitions
factors of production: the inputs used to produce goods and services 
 * == ==
 * production function: the relationship between the quantity of inputs used to make a good and the quantity of output of that good
 * marginal product of labor: the increase in the amount of output from an additional unit of labor
 * diminishing marginal product: the property whereby the marginal product of an input declines as the quantityt of the input increases
 * value of the marginal product: the marginal product of an input times the price of the output.



 * Dig into the inputs of firms
 * Value of labor
 * Equilibrium in the labor markets

 

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<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> What are the factors of production <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">Why do firms demand these factors? <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">What's the most important of the three? <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;">
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">labor, land and capital
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">Because of derived demand: the firm's demand for factros for production is derived from its decision to supply a good in another market.
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">LABOR

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Before we start, we have to make two assumptions: <span style="color: #0085ad; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">Marginal Product of Labor <span style="color: #000000; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">product function: a mathematical outlook of the relationship betweent the input && output marginal product of labor: the increase in the amount of output from an additional unit of labor <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;"> diminishing marginal product: as the number of workers increase, the marginal product of each labor declines.
 * the firm is a price taker
 * it's sole purpose of any of its decision making is for PROFIT
 * when the firm increase the number of workers, the amount of goods produced also rise.

<span style="color: #000000; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> __** Value of Workers **__<span style="color: #000000; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">Firms only care about profit-maximization and therefore calculate workers by its value. The value of any input is the value of marginal product, also referred to as the marginal revenue product.
 * //__The value of marginal product always equals the labor demand curve because below or above the intersecting point, on a graph, the firm would lose profit because of diminishing marginal value.__//



<span style="color: #0085ad; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">Causes of Labor-Demand Curve shifts <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> The output pricee Technological change The supply of Other factors
 * increase in the price: increase the value of marginal product and decrease labor demand
 * decrease in price: decrease the value of marginal product and increase labor demand
 * typically raises marginal product of labor, increase the demand for labor and shift the curve right
 * a fall in supply or input reduces marginal product and also the demand for workers.

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<span style="color: #0085ad; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> __An upward-sloping, positive labor supply curve means that an increase in the wage induces workers to increase the quantity of labor they supply.__

Causes of Labor-Supply shift <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;"> Changes in tastes Changes in alternative opportunities immigration
 * It shifts whenever people change the amount they want to work at a given wage
 * cultural trends such as family size
 * the supply of labor depends on the opportunities available in other labor markets
 * an increase of available workers for a cheap price

<span style="color: #0085ad; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">
<span style="color: #0085ad; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> When the market is in equilibrium:: <span style="color: #000000; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Shift in labor supply
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Each firm has bought as much labor as it finds profitable at the equilibrium wage
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Each firm has hired workers until the value of the marginal product equals the wage
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Any event that changes the supply / demand for labor also changes the equilibrium wage and the value of the marginal product by the same amount b/c these must always be equal



The change in the wage represent a change in the value of the marginal product of labor: with more workers, the added output from an extra worker is smaller. <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">

Shifts in labor demand:

With a higher output price, the added output from an extra worker is more valuable.

Labor supply and labor demand together determine the equilibrium wage and shifts in the supply or demand curve for labor causes the equilibrium wage to change. at the same time, profit-maximization by the firms that demand labor ensures that the equilibrium wage always equals the value of the marginal product of labor.

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<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">capital : stock of equipment and structures used for production. <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">equilibrium in the markets for land and capital purchase price of land: price oa person pays to own that factor of production indefinitely rental price: the price a person pays to use that factor for a limited period of time. For both land and capital, the firm increase the quantity hired until the value of the factor's marginal product equals the factor's price. The demand curve for each factor reflects the marginal productivity of that factor
 * <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">the economy's capital represents the accumulation of goods produced in the past that are being used i n the present.

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<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Th wage adjusts to balance the supply and demand for labor The wage equals the value of the marginal product of labor

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EVERYTHING WITHIN THE FACTORS OF PRODUCTION ARE RELATED AND DEPENDENT ON EACH OTHER

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<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;"> **<span style="background-color: #811a9e; color: #ffffff; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; font-size: 17px; text-align: center;">Review Questions ** <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"><span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> Which of the following best describes the economy's stock of equipment and structures? <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> The marginal product of labor is degined as the change in <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> A profit-maximizing, ocmpetitive firm will always hire an additional worker when the additional worker makes a positive contribution to <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> Which of the following eveents ould lead to n increase in the supply of labor? <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;"> the marginal produc of any favtor of production depends on
 * 1) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">capital
 * 2) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">aggregate demand
 * 3) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">long-term inventory
 * 4) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">aggregate stock
 * 1) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">ouput peradditional unit of revenue
 * 2) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">output per additional unit of labor
 * 3) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">revenue per additional unit of labor
 * 4) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">revenue per ddtitional unit of output
 * 1) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">total revenue
 * 2) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">total profit
 * 3) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">the value of the marginal product of labor
 * 4) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">marginal revenue
 * 1) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">The price of a firm's product increases
 * 2) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">A country experiences an increase in immigrant labor
 * 3) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">The wage rate increses
 * 4) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">al of the above
 * 1) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">quantity of the factor used
 * 2) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">price of the final good
 * 3) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">the demand for the final good
 * 4) <span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">all of the above

Answers18.jaks<span style="display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: left;">

<span style="border-collapse: separate; color: #000000; font-family: arial,helvetica,sans-serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20px; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> = **<span style="background-color: #811a9e; color: #ffffff; display: block; font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif; text-align: center;">Works Cited ** = = = =<span style="font-family: 'Palatino Linotype','Book Antiqua',Palatino,serif;"> = = = image: http://www.superbike.co.uk/news/bmw_2009_s1000rr_superbike_enters_production_news_276364.html image: http://oak.cats.ohiou.edu/~paxton/103/Chapter%2013%205ed_files/image010.jpg image: http://www.scielo.org.co/img/revistas/le/n62/n62a3f2.gif image: http://econlog.econlib.org/archives/sd1.jpg image: http://www.oup.com/uk/orc/bin/0199264961/01student/mcqs/images/ch04q02a.jpg image: https://static.flatworldknowledge.com/sites/all/files/imagecache/book/28239/fwk-rittenberg-fig13_013.jpg video: http://www.youtube.com/watch?v=D649L99JjnY