Exam Review - What is derived demand?Demand for a...

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What is derived demand? Demand for a resource/input that is driven by the demand for the end product Determinants of Resource Demand: Product demand, change in productivity, prices of other resources What is Marginal Revenue Product (definition and formula)? Change in Total Revenue/Change in Resource quantity; how much an additional unit of inputadds to revenue What is the Marginal Resource Cost (definition and formula)? Change in total resource cost/change in unit resource quantity; how much an additional unit of input adds to revenue What is the profit maximizing rule for employing resources? MRP = MRC What is the relationship between MRP and the resource demand curve? MRP becomes the resource demand curve What are the determinants of resource demand: Product demand, change in productivity, prices of other resources How do the prices of other resources affect resource demand? Substitute resources – substituting labor and capital, substitution effect, output effect, demandon labor depends on net effect, Complementary – resources that go together What is the elasticity of resource demand? % change in resource quantity demanded/% change in resource prices What factors will affect elasticity of resource demand? 1.Ease of resource substitutability2.elasticity of product demand 3 ratio of resource cost to total cost What is the Least-Cost rule? MPL/PL = MPC/Pc What is the Profit-Maximizing rule? MRP = P How does a firm determine its optimal combination of resources? MRPL/PL = MRPc/Pc = 1 What is the Marginal Productivity Theory of Income Distribution? Resources receive payments equal to their MRP What are the criticisms of the Marginal Productivity Theory of Income Distribution? Inequality- productive resource distributed in equally; Market imperfections – wage setting power, discrimimation What is a wage rate? Price paid per unit of labor service, usually per hour Define nominal wage: actual amount of income received Define real wage: Wage adjusted for inflation What factors explain differences in productivity among countries? Availability of capital, access to natural resources, technology, labor quality, other factors (social& political environment, size of domestic market, free trade) What has been the long-run trend of real wages in the US? Rising, productivity increased faster than the labor force In a purely competitive labor market, what does the market supply of labor curve look like? The individual firm supply of labor curve?
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