Microeconomics Unit 4 – Factor Markets

 

Key Concepts and Questions:

 

*    The concepts of supply and demand apply to markets of factors such as land, labor and capital, as well as product markets.

*    The demand for factors of production is a derived demand.

*    The demand for factors of production is influenced by the factors marginal product.

*    Factor prices play a key role in determining the allocation of scarce resources.

*    How are wage levels determined?

*    How are employment levels determined?

*    How do forces like the minimum wage, unions, and monopsony power influence competitive labor markets?

*    What is economic rent?

*    How do interest rates influence the supply and demand for investment funds in the credit market?

*    The determination of factor prices can help explain income inequality in market economies.

 

 

Terms and Topics:

 

Ø      Economic Resources                                 

Ø      Resource Payments

Ø      Factors of Production (Land, labor, capital, entrepreneurship)

Ø      Factor Payments (Economic rent, wages, interest, profits)

Ø      Factor (Resource Demand) – Productivity, derived demand, substitution effect, output effect.      

Ø      Firm in the Middle

Ø      Marginal Revenue Product (MRP)

Ø      Marginal Resource Cost (MRC)

Ø      Supply of Factors

Ø      Demand for Factors of Production

Ø      Input                                                                  

Ø      Output

Ø      MRP formulas                                           

Ø      MRP ≥ MRC

Ø      Profit Maximizing Combination                   

Ø      Cost Minimizing Combination

Ø      Nominal Wages                                         

Ø      Real Wages

Ø      Salaries                                                     

Ø      Commission

Ø      Productivity and real wages                        

Ø      Buyer's market – Monopsony, perfect competition.

Ø      AFL                                                                                      

Ø      CIO                                                                                      

Ø      Collective bargaining                                  

Ø      Goals of Unions

Ø      Rent (common usage)                                

Ø      Supply of Natural Resources

Ø      Rent Determination                                    

Ø      Single Tax Movement (Henry George)

Ø      Economic functions of rent                         

Ø      Money as Capital

Ø      Loanable Funds                                         

Ø      Supply of Loanable funds

Ø      Demand for Loanable funds                       

Ø      Determining the interest rate                       

Ø      Functions of interest

Ø      Principal                                                    

Ø      Why borrow money?

Ø      Real Interest Rates                                     

Ø      Nominal Interest Rates

Ø      Normal Profits                                           

Ø      Pure (economic) profits

Ø      Factor Market                                           

Ø      Product Market

Ø      MR vs. MRP                                             

Ø      MC vs. MRC

Ø      Law of Diminishing returns                         

Ø      Inflation

Ø      How do interest rates influence savings, investment, spending, and economic growth?

Ø      How can you change productivity?

Ø      Theoretically, how much should a factor of production be paid?

Ø      Minimum Wage