Labor and capital markets, marginal revenue product, market failure, externalities, public goods, and income distribution.
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- What is derived demand?
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Demand for a factor of production based on the demand for the final good it produces.- Define marginal revenue product of labor (MRPL).
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The additional revenue generated by hiring one more unit of labor, equal to price times marginal product of labor.- In a perfectly competitive labor market, equilibrium wage equals what?
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The marginal revenue product of labor (MRPL).- In a factor market, what does the demand curve represent?
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The marginal revenue product curve of that factor.- What is a monopsony?
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A labor market with a single buyer (employer) of labor.- Define bilateral monopoly.
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A labor market with one seller (worker or union) and one buyer (employer) of labor.- What is human capital?
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The accumulated knowledge, skills, and experience of workers that increase their productivity.- Explain the substitution effect in labor supply.
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When wages rise, workers substitute leisure for work, increasing the quantity of labor supplied.- Explain the income effect in labor supply.
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When wages rise, workers have higher income and can afford more leisure, decreasing the quantity of labor supplied.- A minimum wage set above equilibrium in a competitive labor market causes what?
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Unemployment, as quantity of labor supplied exceeds quantity demanded.- What is occupational licensing?
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Government-required certification to work in certain occupations, which can restrict labor supply.- What is the economic purpose of a labor union?
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To increase workers' bargaining power and raise wages above the competitive level.- Define a negative externality.
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A cost imposed on a third party that is not reflected in the market price.- Define a positive externality.
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A benefit to a third party that is not reflected in the market price.- State the Coase theorem.
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When property rights are clearly defined and transaction costs are zero, parties can negotiate to the socially optimal outcome regardless of the initial assignment of rights.
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