AP Microeconomics Chapter 18

The inputs used to produce goods and services

1. Labor
2. Land
3. Capital

A firm's demand for a factor of production is derived from its decision to supply a good in another market (Ex: the demand for computer programmers is linked to the supply of computer software

The most important factor of production

Labor markets are governed by the forces of _______

Labor markets are different from other markets because labor demand is a ___________

A competitive firm is a _______

A market type in which a single firm has ________ influence on the price of the product or the wages of its workers

A competitive firm only has to decide how many workers to _________ and how many products to _________

A competitive firm is _________

Since a competitive firm is profit maximizing, it doesn't really care about the number of _________ it has or how many ________ it produces

The goal of a competitive firm is to maximize _______

To make a hiring decision, the firm must consider how the _______ of its workforce affects the ________ of output produced

The relationship between the quantity of inputs used to make a good to the quantity of output of that good

Rational people think at the _______

The increase in the amount of output from an additional unit of labor

When the amount of workers __________, the MPL _________

The property whereby the marginal product of an input declines as the quantity of input increases

As more and more workers are hired, each additional worker contributes _______ to the production

The profit from an additional worker is the worker's contribution to revenue _______ the worker's wage

The worker's contribution to revenue is equal to the _______

The marginal product of an input times the price of an output

Because the market price is constant for a competitive firm while the marginal cost declines with more workers, the value of the marginal product ________ as the number of workers _________

The extra revenue the firm gets from hiring an additional unit of a factor of production

The labor demand curve slopes ________ because MPL diminishes and the number of workers rises

To maximize profit, a firm hires workers up to the point where the market wage and the VMPL _____

A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor ________ the wage

The VMPL is the __________ for a competitive, profit maximizing firm

When the ________ price changes, the value of marginal product changes, and the labor demand curve shifts

An increase in the price of a good raises the marginal product of each worker and ________ labor demand from the firm

A decrease in the price of a good reduces the value of marginal product and _______ demand

This typically raises the MPL which in turn increases demand for labor and shifts the demand curve right

Technological changes can reduce demand with the invention of a robot that could reduce _______ and therefore demand for labor

The quantity available for one factor of production can affect the ________ of other factors

There is a trade off between

Workers respond to the increase in the opportunity cost of leisure by taking ______ of it

The labor supply curve is ______ sloping

A change in ______ can increase or decrease labor supply (Ex: more women work now then in 1950 which caused an increase in labor supply)

The supply of labor in one market depends on ________ available in other markets

When immigrants come to a new country, the supply of labor in the country they immigrate to _______

The wage adjusts to ________ the supply and demand for labor

The wage _______ the value of marginal product of labor

Any event that changes the supply and demand for labor must change the ___________ and ________ by the same amount because these must always equal

A price _______ doesn't change MPL, but it does raise VMPL

Highly productive workers are ______ paid and less productive workers are _______ paid

Workers today are better off than previous generations because they are _____ productive

The equipment and structures used to produce goods and services

The economy's ________ represents the accumulation of goods produced in the past that are being used in the present to produce new goods and services

The _______ of land or capital is the price a person pays to own that factor of production indefinitely

The ______ is the price a person pays to use that factor of production for a limited periods of time

Is the rental price of labor

As long as the firms using the factors of production are competitive and profit maximizing, each factor's rental price must be _____ to VMP for that factor

Land, labor, and capital each earn the value of their marginal contribution to the ________

Buyers are willing to pay ______ for a piece of land or capital if it produces a valuable stream of rental income

The equilibrium purchase price of a piece of land or capital depends on both the current value of the marginal product and the value of marginal product expected to prevail in the ________

The marginal product of any factor of production depends on the quantity of that factor that's _________

Because of _______ a factor in abundant supply has a low marginal product and thus a low price, and a factor in scarce supply has a high marginal product and a high price

When the supply of a factor falls, its equilibrium factor price _______

An event that changes the supply of any factor of production can alter the earnings of all the _______

The change in earnings of any factor can be found by analyzing the impact of the event on the _____ of tat factor

During the plague in 14th century Europe, the reduced population caused the MPL to ______ and wages would rise. Also, with fewer workers available to farm land, n additional unit of land produced less additional output and therefore the marginal product of land fell and reduced rent prices.

According to this theory, the amount paid to each factor of production depends on the supply and demand of that factor and the demand, in turn, depends on that particular factor's marginal productivity. In equilibrium, each factor of production earns the value of its marginal contribution to the production of goods and services