Download Economics 0401 Definitions-Part 2 22. LAW OF DIMINISHING

Economics 0401
Definitions-Part 2
22.
LAW OF DIMINISHING MARGINAL RETURNS (LDMR): 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.
23.
MARGINAL PRODUCT (MP): The change in output that results
from changing labor input by one unit.
MP = ΔQ/ΔL
24.
MARGINAL REVENUE PRODUCT (MRPL): The change in the total
revenue that results from changing labor input by one unit.
MRPL = ΔTR/ΔL
25.
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.
26.
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.
27.
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 = - %ΔL/%Δw
28.
CROSS ELASTICITY OF DEMAND: A measure of the responsiveness
of the quantity demanded of input i to the change in the
wage of input j.
eijD = %ΔLi/%Δwj
29.
(a)
eijD > 0 inputs i and j are gross substitutes.
(b)
eijD < 0 inputs i and j are gross complements.
TOTAL WAGE BILL: The total wage cost to the firm; the wage
rate multiplied by the quantity of labor hours employed.
30.
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.
31.
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.
32.
MINIMUM WAGE: A wage floor where a legally established
minimum rate of pay is specified for labor employed in
covered occupations.
33.
GENERAL TRAINING: Skills that can enhance a worker’s
productivity with a wide variety of employers.
34.
SPECIFIC TRAINING: Skills that can enhance a worker’s
productivity with only one employer
35.
HUMAN CAPITAL: The accumulation of prior investment in
education, OJT, health and other factors that increase
productivity.
36.
SCREENING HYPOTHESIS: The view that education only
identifies individuals who are trainable or of high ability
rather than increasing productivity per se.
37.
PRIVATE PERSPECTIVE (for Investment in Human Capital):
Investors consider only those costs and benefits accruing
to themselves when deciding whether to invest in human
capital or not.
38.
SOCIAL PERSPECTIVE (for Investment in Human Capital):
Because education produces substantial external or social
benefits which accrue to everyone in society, education
would be under-produced if these benefits were ignored in
the provision of education.
39.
CAPITAL MARKET IMPERFECTIONS: The bias against lending
money for investments in human capital that occurs largely
because human beings cannot be used as collateral for
loans.