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Economics Vocab

Economics Vocab - Chapter 13 Money-Income Determination The...

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Chapter 13 Money-Income Determination - The expenditures that firms make in acquiring economic resources flow as wage, rent, interest, and profit incomes to the households that supply those resources. Cost Minimization - The firm must produce the profit-maximizing output with the most efficient combination of resources. Resource Allocation - Resource prices allocate resources among industries and firms. Policy Issues - Governmental issues regarding the resource market. Derived Demand - It is derived from the products that the resources help produce. Marginal Resource Cost (MRC) - The amount that each additional unit of a resource adds to the firm’s total resource cost. MRC= Change in Total Resource Cost/ Unit Change in Resource Quantity Substitution Effect- The substitution effect indicates that a firm will purchase more of an input whose relative price has declined and, conversely, use less of an input whose relative price has increased. Output Effect - The firm will purchase more of one particular input when the price of the other input falls and less of that particular input when the price of the other input rises. Least-Cost Combination of Resources- The cost of any output is minimized when the ratios of marginal product to price of the last units of resource used are the same for each resource. (ie: In competitive resource markets, recall, marginal resource cost is the market resource price; the firm can hire as many or as few units of the resource as it wants at that price.) Profit-Maximizing Combination of Resources- When each resource is employed to the point at which its marginal revenue product equals its resource price. Marginal Productivity Theory of Income Distribution- Income gets distributed according to contribution to society’s input. Chapter 14 Wage Rate- Is the price paid per unit of labor services (ie: an hour of work) Nominal Wage- The amount of money received per hour, day, or year. Real Wage- The quantity of goods and services a worker can obtain with nominal wages (Real wages reveal the ‘purchasing power’ of nominal wages) Monopsony- A market in which a single employer of labor has substantial buying (hiring) power.
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