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Microeconomics CH 13
Vocab
11
Economics
Undergraduate 1
04/13/2009

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Term
Derived Demand
Definition
The demand for a resource that depends on the demand for the products it helps to produce.
Term
Marginal Product (MP)
Definition
The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resouce employed.
Term
Marginal Revenue Product (MRP)
Definition
The change in a firm's total revenue when it employs 1 additional unit of a resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed.
Term
Marginal Resource Cost (MRC)
Definition
The amount the total cost of employing a resource increases when a firm employs 1 additional unit of the resource (the quantity of all other resources employed remaining constant); equal to the change in the total cost of the resource divided by the change in the quantity of the resource employed.
Term
MRP = MRC rule
Definition
The principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being the wage rate in pure competition.
Term
Substitution Effect
Definition
(1) A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; (2) the effect of a change in teh price of a resource on the quantity of the resource employed by a firm, assuming no change in its output.
Term
Output Effect
Definition
The situation in which an increasee in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in teh price of the input
Term
Elasticity of Resource Demand
Definition
A measure of the responsiveness of firms to a change in the price of a particular resource they employ or use; the percentage change in the quantity of the resource demanded divided by the percentage change in its price.
Term
Least-Cost Combination of Resources
Definition
The quantity of each resource a firm must employ in order to produce a particular output at the lowest total cost; the combination at which the ratio of the marginal product of a resource to its marginal resource cost (to its price if the resource is employed in a competitive market) is the same for the last dollar spent on each of the resources employed.
Term
Profit-Maximizing Combination of Resources
Definition
The quantity of each resource a frim must employ to maximize its profit or minimize its loss; the combination in which the marginal revenue product ofc each resource is equal to its marginal resource cost (to its price if the resource is employed in a competitive market).
Term
Marginal Productivity Theory of Income Distribution
Definition
The contention that the distribution of income is equitable when each unit of each resource receives a money payment equal to its marginal contribution to the firm's revenue (its marginal revenue product).
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