Economics 0401
Vocabulary List: Definitions-Part 1
01. SCARCITY:
This occurs when relatively unlimited human wants (demands) exceed the
ability of limited resources to satisfy those wants.
02.
03. RATIONALITY: Individuals weigh the
benefits and costs of their actions
and act when benefits exceed cost but refrain from acting when
costs exceed benefits.
04.
VOLUNTARY EXCHANGE: When two parties to a
potential exchange can bargain
over the exchange price and (a) exchange a good if both parties benefit from the exchange, or (b) refrain from exchange if one party does not benefit from the exchange.
05.
COERCED EXCHANGE: When one party to a
potential exchange can force an
exchange (by force of law) as long as such an exchange
is beneficial to him. The other party
will typically lose from the exchange, and so would not have consented to
the exchange if given the freedom to refuse the offer.
06.
BARGAINING POWER: (Develop definition in
class)
07.
EXPLOITATION: (Develop definition in
class)
08. LAW
OF DEMAND FOR LABOR: The quantity demanded of labor varies inversely with the
wage rate, all other things held constant.
09. DEMAND
PRICE OF LABOR: The maximum wage that an employer is willing to pay a given
worker, based on an estimate of that worker’s productivity.
10. OUTPUT
(SCALE) EFFECT: The change in employment which occurs because of a change in
the firm’s output. This change in output is caused by a change in the wage rate
which causes the firm’s cost of production and the desired level of output to
change.
11. SUBSTITUTION EFFECT (As It Relates to
Production): The change in employment
resulting solely from a change in the relative price of
labor, output being
held constant.
12. SHIFTS
IN THE DEMAND FOR LABOR: Changes in the factors that are held constant
will cause a shift in the demand curve as opposed to a movement along the
demand curve. These changes include changes in the product demand, prices of
other inputs (substitutes or complements), productivity, and the number of
employers.
13. DERIVED
DEMAND: The notion that the demand curves for labor and other productive
services are derived from the demand for the product they are used to produce.
14. LAW OF SUPPLY FOR LABOR: The quantity supplied
of labor varies directly with
the wage, all other things held constant.
15.
SUPPLY PRICE OF LABOR: The lowest wage at
which a given worker is
willing to supply labor to a particular market. This wage is
determined by the
opportunity cost to that worker of supplying his labor services
to that market
instead of his next best alternative.
16. SHIFTS
IN THE SUPPLY OF LABOR: Changes in the things held constant will
cause shifts in the
labor supply curve, as opposed to a movement along
the curve. These
changes include other wage rates, non-wage income,
preferences for work
versus leisure, non-wage aspects of jobs, and the
number of qualified
labor suppliers.
17. EQUILIBRIUM: Occurs when the quantity demanded
of labor equals the quantity supplied of labor at a given wage.
18. DISEQUILIBRIUM:
There are two cases: (1) Case 1: Excess Supply (ES) occurs
when w > we, ES = LS – LD > 0, and
wages have a tendency to fall as unemployed workers lower their wage offers in
order become employed. (2) Case 2: Excess Demand (ED) occurs when w <
we, ED = LD – LS > 0, and wages have a
tendency to rise as employers try to fill their vacant positions.
19. EMPLOYERS’ SURPLUS: The difference between the
demand price for labor and
the actual price of labor, summed over all units of labor hired.
20. WORKERS’ RENT: The difference between a
worker’s actual price and the supply price, summed over all workers hired.
21. LAW
OF DIMINISHING MARGINAL RETURNS: The principle that if technology is unchanged,
as more units of a variable resource are combined with one or more fixed
resources, the marginal product of the variable resource must eventually
decline.
22. MARGINAL
PRODUCT: The change in total product that results from changing labor input by
one unit.
23. MARGINAL
REVENUE PRODUCT (MRPL): The change in the total revenue that results
from changing labor input by one unit.
24. GROSS
SUBSTITUTES: Inputs such that when the price of one changes, the
demand for the other
changes in the same direction because the
substitution effect
exceeds the output effect.
25. GROSS
COMPLEMENTS: Inputs such that when the price of one changes,
the
demand for the other
changes in the opposite direction because the
output effect exceeds
the substitution effect.
26. OWN-WAGE
ELASTICITY OF DEMAND (eD): A measure of the
responsiveness of
the quantity of labor
demanded to a change in the wage rate. eD
equals
the percentage change
in the quantity of labor demanded divided by the
percentage change in
the wage rate.
27. TOTAL
WAGE BILL: The total wage cost to the firm; the wage rate multiplied by the
quantity of labor hours employed.
28. TOTAL
WAGE BILL RULES: Rules for determining the elasticity of labor demand. Labor
demand is elastic if a change in the wage rate causes the total wage bill to
move in the opposite direction. Labor demand is inelastic if a change in the
wage rate causes the total wage bill to move in the same direction.
29. DETERMINANTS
OF ELASTICITY OF DEMAND FOR LABOR: These include: product demand, ease of
substituting other inputs, the elasticity of supply of other inputs, and the
share of labor cost in the total costs of the firm.
30. MINIMUM WAGE: A wage floor where a
legally established minimum rate of pay is specified for labor employed in
covered occupations.
31. SPECIFIC TRAINING: The creation of
worker skills that are of value only to the particular firm providing the
training.
32. GENERAL TRAINING: The creation of
worker skills which are equally valuable in a number of firms or industries.
33. STATISTICAL DISCRIMINATION: Judging
an individual on the basis of the average characteristics of the group to which
he or she belongs rather than on the basis of his or her personal
characteristics.