Practice | Homework F1
Due: Sunday, December 8th on Gradescope
Homework is designed to both test your knowledge and challenge you to apply familiar concepts in new applications. Answer clearly and completely use this sheet to show your work so you can later understand your thought process; you are welcomed and encouraged to work in groups as long as your work is your own. Submit your work on Gradescope when you're finished.
Factor Markets and Income Distribution
Factor markets determine how income is distributed in the economy. Households sell their labor and capital to firms, who use these factors of production to create goods and services. The prices in factor markets - wages for labor and rent for capital - determine household incomes, which then become the budget constraints for consumer choice.
Q1. Labor Market Equilibrium
In a perfectly competitive labor market, if the demand for labor increases while the supply of labor remains constant, what happens to the equilibrium wage rate?
Q2. Marginal Revenue Product
What determines a firm's demand for labor in the short run?
Q3. Output Price Effects
If the price of the output produced by workers increases, what happens to the demand for labor?
Q4. Monopsony Markets
In a monopsony labor market (where there is only one buyer of labor), how does the wage rate compare to the marginal revenue product of labor?
Q5. Economic Rent
What is the economic rent earned by a factor of production?