AP Econ Chapter 25 The Demand for Resources

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derived demand

demand derived from the products that the resources help produce

marginal product

additional ouptup resulting from using each additional unit of labor

marginal revenue product

the change in total revenue resulting from the use of each additional unit of a resource

MRP=MRC

rule for employing resources

substitution effect

indicates that a firm will purchase more of an input whose relative price has declined and use less of an input whose relative price has increased

output effect

indicated that a firm will purchase more of one particular input when the price of the other input falls and less of that particular input when the price of the other input rises

elasticity of resource demand

measures the sensitivity of producers to changes in resource prices

least-cost combination of resources

when the last dollar spent on each resource yields the same marginal product

MPL/PL=MPC/PC

equation for LC

profit macimizing combination of resources

when each resource is employed to the point at which its marginal revenue product equals its resource price

MRPL/PL=MRPC/PC=1

PM equation

marginal productivity theory of income distribution

income gets distributed according to contribution to society's ouput

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