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ECON 2020 Final Review - ECON 2020 EXAM#5 STUDY GUIDE TERMS...

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ECON 2020 EXAM #5 STUDY GUIDE TERMS Derived demand : is demand for inputs that exists because of the demand for outputs that they produce. There is a direct relationship between the demand for the output and the demand for labor. Along a labor demand curve, there is an inverse relationship between the wage rate the level of employment. Labor : market activities for which a wage is earned Leisure : all non-market activities Perfect competition : many small employers compete for many workers with identical skills. Firms are “price takers” because they face perfectly elastic supply of labor. A firm can hire as many workers as it needs at We, but the quantity of labor supplied at any lower wage is zero. Marginal revenue product of labor : the change in TR from 1 unit increase in labor Formula MRPL = MR - MPL Marginal factor cost : the change in TC from a 1 unit increase in labor Formula TVC = L * W or for perfect competition: MFC = change in TVC = W Monopsony : a single buyer (employer) in an industry. Virginia mining towns for example. A monopsonist faces the entire, upward-sloping market supply curve. In order to hire more workers, the firm must increase the wage rate for all employees. The veteran employees wont want to work for less than the new employees. Exploitation of labor : when the worth of a worker is more than the wage the worker is being paid; W < MRPL. Happens only in monopsony Union :a cartel of workers in an industry Strike: a collective refusal to work under current conditions. If it is used as a last resort, often does not work. Market failure : is a situation in which the socially optimal amount of good or service is not produced. The optimal amount could be more or less. This is determined by external costs and benefits Marginal social cost : is the additional cost imposed on society as a whole by an additional unit of a good, also known as an external cost. Second hand smoke and pollution are external costs. Marginal social benefit : is the additional gain to society as a whole from an additional unit. A college degree is and external benefit.
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