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AP Econ Chapter 25 The Demand for Resources

STUDY
PLAY
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