Microeconomics 9. The Labor Market and Wage Determination

  1. Explain why the demand for labor and other factors of production is a derived demand.
  2. The derived nature of resource demand implies that the strength of the demand for a factor such as labor will depend on what two things?
  3. As the units of labor increase, the total product increases but the marginal product of labor decreases. What law is responsible for this?
  4. What is the marginal revenue product?
  5. State the Marginal Productivity Theory of resource demand.
  6. Define marginal resource cost.
  7. State the rule for employing factor resources.
  8. What is the MRC equal to under the assumption that the labor market is perfectly competitive?
  9. State the complete rule for profit maximization under perfect competition.
  10. Why does the MR.P schedule constitute the firm’s demand for labor?
  11. Illustrate the backward-bending curve.
  12. Explain the income effect.
  13. Explain the substitution effect.
  14. How does immigration affect wages? Why?
  15. What happens to wages at the level of employment under monopsony relative to a perfectly competitive labor market? Why?
  16. Illustrate a typical equilibrium in a unionized labor market. Are wages high or low? What about employment?
  17. What other factors may account for wage differentials among people in different occupations.
  18. What do compensating differentials measure?
  19. What does human capital refer to?
  20. Name three immobilities that are sources of wage differentials.
  21. What are non-competing groups and how do they affect wages?

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