Term
| 3 features of labor markets that are COMMON to all markets |
|
Definition
1. information regarding price and quality is exchange
2. institutions have arisen to handle the buying and selling labor (ex: want ads, employment agencies, job placement centers)
3. some kind of contract between buyers and sellers is developed |
|
|
Term
| unique features of labor markets |
|
Definition
1. labor can only be rented, not bought
2. nonmonetary factors matter with labor
3. institutions and laws have developed that are specific to labor markets (ex: unions, 8 hour day laws, child labor laws |
|
|
Term
| law of diminishing returns |
|
Definition
| as L+, holding all other inputs constant. Its MPl eventually decreases (only occurs in short run) |
|
|
Term
| why does law of diminishing returns occur? |
|
Definition
| Occurs because each additional worker has a smaller and smaller portion of capital to work with |
|
|
Term
| cross-price elasticty of demand |
|
Definition
tells us that the %change in demand when the price of another input increases by 1%
--%change in inputI/%change priceJ |
|
|
Term
|
Definition
Nij>0 --> 2 inputs are gross substitutes
Nij<0 --> 2 inputes are gross compliments
Nij=0 --> 2 inputs are unrelated |
|
|
Term
| does international trade decrease employment? |
|
Definition
SR: yes, but only in certain industries (those vulnerable to imports)
LR: no, it causes a shift in employment among different industries (not a reduction!) |
|
|
Term
| when there is an increase in wage, fully give the substitution effect |
|
Definition
| increase in wage = relative price of labor increase, QP of labor decreases |
|
|
Term
| Marginal cost of labor (MCl) |
|
Definition
| increase in labor costs by increasing labor by 1 |
|
|
Term
|
Definition
| government use of trade barriers to protect domestic production from imported goods |
|
|
Term
| 4 definitions of real wage |
|
Definition
Wage denominated in constant dollars
- Wage adjusted for inflation
- Nominal wage divided by the price level
- actual purchasing power of your wage after controlling for prices |
|
|
Term
| general profit-max rule for hiring labor |
|
Definition
- To maximize profits, a firm hires to where MRPl=MCl
- Verbal interpretation of the general profit max rule = o A firm hires labor to where the extra revenue from the last worker hired equals the extra cost of hiring the last worker |
|
|
Term
|
Definition
| all else held constant – that is an inverse relationship between the wage and QD of labor (wage goes up, quantity demanded of labor goes up) |
|
|
Term
| 3 characteristics of market equilibrium in the labor market |
|
Definition
- Graphically, it is where the supply curve and demand curve intersect
- At equilibrium, Labor Demand = Labor Supply
- The market tends to remain at equilibrium until something upsets the market |
|
|
Term
| two definitions for nominal wage |
|
Definition
|
|
Term
| How can unions make their labor demand more inelastic? |
|
Definition
1. Lobby against immigration
2. Lobby against imports
3. Union advertising
4. Union support for a higher minimum wage
5. Support for higher welfare payments |
|
|
Term
|
Definition
| Increase in labor costs by increasing labor by 1 unit |
|
|
Term
|
Definition
tariffs: a tax levied on imports
import quota: quantitative limitaitons on the amount of imports |
|
|
Term
| does international trade decrease employment? (both SR and LR) |
|
Definition
SR: yes, trade may reduce employment in certain industries
LR: no, international trade does NOT reduce employment, but SHIFTS employment between industries |
|
|
Term
| own-wage elasticity of demand |
|
Definition
| %change labor/%change wage **everything in absolutle power) this means a 1% change in the wage will cause a nii% change in labor |
|
|
Term
| nominal wage - two definitions |
|
Definition
- Wage denominated in current dollars
- Wage not adjusted for inflation |
|
|
Term
| how does monopoly affect the demand curve for labor |
|
Definition
| lowers demand -- monopolist produces less output than a perfectly competitive industry |
|
|
