AP Microeconomics Flashcards: Introduction To Factor Markets

What this deck covers

This deck focuses on Introduction To Factor Markets, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: Explain the impact of technological advancement on labor demand.

Answer: Increases demand if it complements labor. If technology enhances worker productivity, demand rises.

Flashcard 2: What is the equilibrium wage rate?

Answer: The wage where labor supply equals labor demand. Market-clearing wage where quantity supplied equals quantity demanded.

Flashcard 3: Define the term 'capital' in factor markets.

Answer: Man-made resources used in production. Physical assets like machinery, buildings, and equipment used in production.

Flashcard 4: How does a firm's demand for labor change with an increase in product demand?

Answer: It increases. Higher product demand increases marginal revenue product of labor.

Flashcard 5: What effect does a subsidy on production have on factor demand?

Answer: Increases factor demand. Lower production costs increase profitability and input demand.

Flashcard 6: Which factor market is primarily concerned with interest rates?

Answer: Capital. Interest is the price paid for borrowing or using capital.

Flashcard 7: What does a monopsony in labor markets imply?

Answer: A single buyer of labor. Market power allows paying wages below competitive levels.

Flashcard 8: State the formula for marginal revenue product (MRP).

Answer: MRP = MP × MR. Multiplies marginal product by marginal revenue to find factor's value.

Flashcard 9: Define 'marginal cost of labor'.

Answer: The additional cost of hiring one more worker. The wage increase needed to attract one additional worker.

Flashcard 10: Identify the primary factor affecting capital supply.

Answer: Interest rates. Higher rates increase the cost of borrowing capital.

Flashcard 11: Define 'human capital'.

Answer: Skills and knowledge acquired by workers. Education and training that enhance worker productivity.

Flashcard 12: Define marginal product (MP).

Answer: The additional output from using one more unit of a factor. Measures productivity increase from each additional unit of input.

Flashcard 13: What is the relationship between MRP and factor demand?

Answer: MRP determines the demand for a factor. Firms hire factors up to where $MRP$ equals factor price.

Flashcard 14: What is the relationship between factor price and quantity supplied?

Answer: Direct relationship; price increases lead to more supplied. Law of supply applies to factor markets too.

Flashcard 15: What does the term 'entrepreneurship' entail in factor markets?

Answer: The ability to coordinate and manage production. Involves organizing resources, taking risks, and making business decisions.

Flashcard 16: What role does 'risk' play in entrepreneurship?

Answer: Entrepreneurs assume risk for potential profit. Risk-taking is rewarded with potential profits from successful ventures.

Flashcard 17: Identify the primary factor affecting capital supply.

Answer: Interest rates. Higher rates increase the cost of borrowing capital.

Flashcard 18: Which factor is most directly associated with wages?

Answer: Labor. Wages are the primary payment for human work effort.

Flashcard 19: State the impact of unionization on wages.

Answer: Generally increases wages. Collective bargaining gives workers more negotiating power.

Flashcard 20: Define marginal product (MP).

Answer: The additional output from using one more unit of a factor. Measures productivity increase from each additional unit of input.

Flashcard 21: How does a decrease in labor supply affect wages?

Answer: Wages increase. Reduced supply creates scarcity, driving wages up.

Flashcard 22: Choose the correct effect: Increased immigration affects labor supply how?

Answer: Increases labor supply. More workers enter the market, shifting supply rightward.

Flashcard 23: What is the primary factor payment for land?

Answer: Rent. Payment for using natural resources and real estate.

Flashcard 24: What is the relationship between capital intensity and labor demand?

Answer: More capital intensity may reduce labor demand. Capital and labor can be substitutes in production.

Flashcard 25: Which factor market is primarily concerned with interest rates?

Answer: Capital. Interest is the price paid for borrowing or using capital.

Flashcard 26: What is the primary factor affecting land supply?

Answer: Geographical limitations. Fixed land area makes supply perfectly inelastic.

Flashcard 27: How does a firm's demand for labor change with an increase in product demand?

Answer: It increases. Higher product demand increases marginal revenue product of labor.

Flashcard 28: What is the supply curve for labor typically shaped like?

Answer: Upward sloping. Higher wages incentivize more people to work.

Flashcard 29: What shifts the labor supply curve?

Answer: Changes in population, preferences, and alternative opportunities. These factors change workers' willingness to supply labor.

Flashcard 30: What is the effect of a minimum wage on employment in a competitive market?

Answer: It can cause unemployment if set above equilibrium. Price floor above equilibrium creates surplus of labor.

Flashcard 31: Identify the key determinant of labor demand.

Answer: The marginal productivity of labor. Higher productivity makes workers more valuable to employers.

Flashcard 32: What is a factor market?

Answer: A market where factors of production are bought and sold. Where businesses buy inputs like labor and land to produce goods and services.

Flashcard 33: What happens to the demand for a factor when its productivity increases?

Answer: Demand increases. Higher productivity increases marginal revenue product.

Flashcard 34: Explain the impact of technological advancement on labor demand.

Answer: Increases demand if it complements labor. If technology enhances worker productivity, demand rises.

Flashcard 35: What is the primary factor payment for land?

Answer: Rent. Payment for using natural resources and real estate.

Flashcard 36: What is derived demand?

Answer: Demand for a factor of production arising from demand for the good it produces. Factor demand depends on consumer demand for the final product.

Flashcard 37: What is the substitution effect in labor markets?

Answer: Increased work hours as wages rise. Workers substitute leisure for work when wages increase.

Flashcard 38: How is economic rent defined in factor markets?

Answer: Payment to a factor in excess of its opportunity cost. Earnings above what's needed to keep the factor in current use.

Flashcard 39: State the formula for marginal revenue product (MRP).

Answer: MRP = MP × MR. Multiplies marginal product by marginal revenue to find factor's value.

Flashcard 40: Identify the term for payment to capital in factor markets.

Answer: Interest. The return earned by capital owners for providing funds.

Flashcard 41: What happens to the demand for a factor when its productivity increases?

Answer: Demand increases. Higher productivity increases marginal revenue product.

Flashcard 42: How does an increase in labor productivity influence wages?

Answer: It tends to increase wages. Higher productivity increases workers' marginal revenue product.

Flashcard 43: Which factor is most directly associated with wages?

Answer: Labor. Wages are the primary payment for human work effort.

Flashcard 44: What are the factors of production?

Answer: Land, labor, capital, and entrepreneurship. The four basic inputs needed for all production processes.

Flashcard 45: How does an increase in the price of a good affect labor demand?

Answer: Increases labor demand. Higher output prices increase marginal revenue product.

Flashcard 46: State the law of diminishing marginal returns.

Answer: Adding more of one factor, holding others constant, decreases marginal output. Eventually each additional unit contributes less to total output.

Flashcard 47: What does a monopsony in labor markets imply?

Answer: A single buyer of labor. Market power allows paying wages below competitive levels.