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ECON 1126 Chapter Notes - Chapter 17: Demand Curve, Opportunity Cost, Human Capital

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plumsheep685
26 Jun 2016
School
Northeastern University
Department
Economics
Course
ECON 1126
Professor
Jelena Nikolic

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Document Summary

Derived demand-demand for a factor of production related to good factor produces. Mrp - additional revenue earned from hiring one more worker. Mrp > wage profits increasing & continue to hire. Increase/decrease in wage increase/decrease in qd of labor. 1: more technology -- more productive, change in the price of product, quantity of other inputs -- more inputs, more production, number of firms in the market. Wages too high may result in lower supply. Substitution- increase in wage raises opp cost of leisure - devote more time to work. > @ low wages - supplies more labor as wage increases. Income- increases purchasing power, devote less time to work. > @ high wages - supplies less labor as wage increases. More productive - more output - higher wages. Higher mrp: compensating differentials - higher wages for unpleasant aspects. Laws protecting health of workers may work against workers: discrimination - paying a person lower wage on basis of irrelevant characteristic.

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Related Questions

(1)
 
Which of the following employment situations would most closely approximate a monopsony?
 
  a steel mill in Yokahama, Japan.
  a fast food restaurant in a big city.
  a farmer hiring seasonal workers.
  a large factory in a small town.

 

 

 
(2)
 
If a monopsonist hires labor, it will choose to hire that quantity at which ___________ and pay a wage rate that is _______________.
 
  MR = MC; equal to the MRP curve.
  the supply curve intersect the MRP; less than MFC
  MRP = MFC; less than MRP
  the supply curve intersect the MRP; equal to MRP

 

 

 
(3)
 
Suppose a firm employs both labor and capital. If the ratio of marginal product to price of labor is 50/$10 and the ratio of marginal product of capital to price of capital is 60/$12, the firm should
 
  maintain the current combination capital and labor.
  buy more labor and less capital because labor is cheaper.
  buy more capital and less labor because capital is cheaper.
  buy more capital because it is more productive than labor.

 

 

 
(4)
 
Derived demand for labor means that when a firm hires labor, it has to derive its demand
 
  mathematically.
  based on the labor supply.
  from the demand for the product that the labor produces.
  based on the minimum wage.

 

 

 
(5)
 
For a firm in perfect competition, the value of the marginal product is
 
  the value of an additional unit of output measured in terms of additional cost.
  the total value of the total output output divided by the total output.
  additional revenue minus additional cost as a result of an increase in output.
  the price of the product multiplied by the additional output resulting from an additional unit employed.

 

 

 
(6)
 
A firm that is perfectly competitive will hire labor as long as which of the following is true?
 
  VMP < W.
  VMP > W.
  MC > MR.
  VMP < MRP.

 

 

 
(7)
 
The VMP curve slopes downward at some point because
 
  congestion in the work place lowers marginal product.
  teamwork in the work place increases marginal product.
  the firm hires less labor as the wage rate rises.
  labor supplies less amounts of labor as the wage rate falls.

 

 

 
(8)
 
Which of the following would not be considered capital in a business?
 
  The employees
  The factory
  A machine
  Tools

 

 

 
(9)
 
The increase in the value of a firm’s capital as it increases in age and use is depreciation.
 
  true
  false

 

 

 
(10)
 
On a labor market graph, a firm’s demand for labor is
 
  the wage rate.
  the marginal revenue product curve.
  the marginal product curve.
  indeterminant.

 

 

 
(11)
 
Why may a household’s labor supply curve bend backwards at some wage rate?
 
  The household substitutes labor for leisure.
  The household substitutes leisure for labor.
  Employers demand fewer employees at higher wage rates.
  Households want to supply more labor as the wage rate decreases to maintain incomes.

 

 

 
(12)
 
The substitution effect is usually stronger than the income effect, thus creating an upward sloping labor supply curve.
 
  true
  false

 

 

 
(13)
 
An inelastic demand for labor means that an increase in the wage rate causes a less than proportionate decrease in the quantity of labor demanded.
 
  true
  false

 

 

 
(14)
 
Marginal revenue product is
 
  marginal revenue divided by marginal product.
  marginal revenue times marginal product.
  marginal product minus marginal revenue.
  marginal product plus marginal revenue.

 

 

 
(15)
 
A firm obeys the least-cost rule by equating the ratios of ___________________ to the ________________ price.
 
  marginal product; product
  marginal product; factor
  marginal cost; product
  marginal revenue; product

 

 

 
(16)
 
Suppose the MP of the last unit of capital hired equals 12 and the MP of the last unit of labor hired equals 16.If the price of capital is $8 per unit and the price of labor is $8 per unit, then the firm
 
  is maximizing its costs with this combination of factors.
  is maximizing its profits with this combination of factors.
  should hire more labor and less capital in order to minimize its costs.
  should hire more capital and less labor in order to minimize its costs.

 

 

 
(17)
 
For a firm to minimize its costs with more than one factor of production, for every factor, the ratio of the
 
  marginal product to factor price must be equal.
  marginal revenue product to factor price must be equal.
  marginal revenue product to output must be equal.
  marginal cost to factor price must be equal.

 

 

 
(18)
 
A monopsony is a firm that, in a specific market, is the only
 
  seller of a product.
  buyer of a product.
  seller of a factor of production.
  buyer of a factor of production.

 

 

 
(19)
 
Which of the following businesses would most closely approximate a monopsonist?
 
  A steel mill in Pittsburgh
  A fast food franchise in a large city
  A large manufacturer in a rural county
  A rancher who hires ranch help

 

 

 
(20)
 
A firm has the opportunity to buy a machine that costs $2500. It has found the present value of the income generated by the machine to be $2487. It should purchase the machine.
 
  true
  false

 

 

 
(21)
 
An increase in the market rate of interest causes
 
  a leftward shift in the demand for capital curve.
  a rightward shift in the demand for capital curve.
  a movement up the demand for capital curve.
  a movement down the demand for capital curve.

 

 

 
(22)
 
The characteristic of capital that makes it different from labor is its
 
  high cost.
  durability.
  rotunda.
  relatively low cost compared to labor.

 

 

 
(23)
 
The present value of $1000 one year in the future at a 10 percent interest rate is approximately
 
  $870.
  $909.
  $1000.
  $1909.

 

 

 
     
1. A firm's supply curve for labor: A) is vertical for a firm in perfect competition. B) is the same thing as the MRPL for a firm in perfect competition. C) and the firm's MRPL will determine the profit-maximizing quantity of labor hired by the firm in perfect competition. D) is the same as its demand curve for labor. 2. The wage paid by a firm buying labor in a perfectly competitive market: A) is greater than the market wage. B) is less than the market wage. C) is equal to the market wage. D) increases with the quantity of labor hired. 3. A lower wage: A) has an income effect but not a substitution effect on the quantity of labor supplied. B) means a higher income for any given level of labor supplied. C) has an income effect which is always negative with respect to the quantity of labor supplied. D) has an income effect which is always positive with respect to the quantity of labor supplied. 4. In perfect competition where P is the price of output: A) MRPL = MPL x P. B) MRPL/MPL = PL. C) MRP/P = MPK. D) MRPL x P = MPL. 5. The net present value (NPV) of an activity or project is: A) equal to the future value of all the revenues minus the present value of all the costs associated with it. B) equal to the present value of all the revenues minus the present values of all the costs associated with it. C) equal to the present value of all the revenues minus the future values of all the costs associated with it. D) equal to the future values of all the revenues minus the future values of all the costs associated with it. 6. The condition for hiring factors of production- that is, where MFC = MRP- is analogous to the profit-maximizing output condition: A) TR = TC. B) MR = MC. C) AR = ATC. D) P = MR. 7. A firm should use less of a factor of production if: A) MRP > MFC. B) MRP = MFC C) (MR x MP) < MFC D) MRP < (MP x MR)

The labor supply curve shift following a decrease in the capital stock is a result of _____________.

A. intertemporal substitution of leisure

B. a negative income effect

C. consumption smoothing

D. a positive income effect

When current total factor productivity increases:

A. firms sell capital because the remaining capital is more productive

B. firms hire more workers because the marginal product of labor increases.

C. firms hire fewer workers because the remaining workers are more productive

D. firms increase investment because the marginal product of capital increases

Which of the following correctly explains why the labor demand curve doesn't shift following an increase in government spending?

A. There is no substitution effect.

B. There is no income effect.

C. There is no change in the wage rate

D. There is no change in the marginal product of labor.