added output
👷MICROECONOMICS STUDY GUIDE
Labor Markets, Wages, and Income
Study labor demand, marginal revenue product, wage setting, human capital, and income distribution.
8 key ideas8 flashcards5 practice questions
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Compare what the next worker produces with what the worker costs.
added receipts per output unit
added receipts from labor
Key ideas to know
Start with the relationships between ideas. Then close the notes and explain each one from memory.
- 01
Labor demand is derived from the revenue workers help produce.
- 02
Marginal revenue product equals marginal product of labor times marginal revenue.
- 03
A profit-maximizing employer hires labor until added revenue from the last worker matches the added labor cost.
- 04
Labor supply reflects the tradeoff between paid work and nonwork time.
- 05
Human capital includes education, training, and experience that raise worker productivity.
- 06
Compensating wage differences can pay workers for unpleasant or risky job traits.
- 07
A monopsony buyer of labor has wage-setting power in its labor market.
- 08
Income differences can arise from productivity, bargaining power, discrimination, institutions, wealth, and luck.
PART OF THE MICROECONOMICS GUIDE
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Open the full Microeconomics guide →Two ideas worth correcting now
NOT QUITE
→Labor demand comes from worker preferences
USE THIS INSTEAD
It comes from the revenue workers can help produce.
NOT QUITE
→All wage differences measure productivity
USE THIS INSTEAD
Institutions, bargaining, discrimination, job traits, and market power can also matter.
Flashcards
Answer before opening each card. The effort to retrieve is part of the learning.
1Why is labor demand derived?Show answer ＋
Workers are hired because they help produce goods or services buyers purchase.
2What is marginal revenue product?Show answer ＋
Added revenue from one more unit of labor.
3What is the hiring rule?Show answer ＋
Hire until marginal revenue product matches marginal labor cost.
4What is human capital?Show answer ＋
Productive knowledge and abilities acquired through education, training, and experience.
5What is a compensating wage difference?Show answer ＋
Extra pay tied to an undesirable job trait.
6What is monopsony?Show answer ＋
A market with one dominant buyer, including a dominant employer in a local labor market.
7What can shift labor demand?Show answer ＋
Product demand, worker productivity, output price, or prices of related inputs.
8What does a Lorenz curve display?Show answer ＋
The cumulative distribution of income or wealth across a population.
Explain it in your own words
Use the answer as a check after you have written or spoken your response.
01Why can higher product demand raise wages?
It can raise worker marginal revenue product and shift labor demand outward.
02How can training raise labor demand for a worker?
Higher productivity can raise the worker's marginal revenue product.
03Why can one employer pay below a competitive wage?
With monopsony power, the employer faces an upward-sloping labor supply curve.
04Why does a wage gap not by itself identify discrimination?
Job traits and worker traits must be measured, though unexplained gaps can still warrant testing for unequal treatment.
05How can a minimum wage affect a monopsony market?
Within a range, it can raise wages and employment by limiting the employer's wage-setting power.
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