Exam 19: Labor and Entrepreneurship: the Human Inputs

The marginal revenue product is the extra revenue the firm receives by hiring one additional unit of input.

Average real wages have not risen significantly since approximately 1973.

Define the following terms and explain their importance to the study of economics. a. minimum wage law b. income and substitution effects c. backward-bending labor supply curve d. human capital theory e. dual labor markets

Some take issue with the human capital argument that employers pay more for college graduates because firms recognize the value of human capital. What are two alternative explanations for why college grads receive higher pay?

Rising productivity usually reduces workers' standards of living.

Explain how the demand for labor is determined.

Most innovations and inventions have come from the R&D departments of large firms.

The substitution effect of a decrease in the wage rate would lead most people to supply

Explain the concept of "creative destruction" by innovation. Does it ensure positive economic profits in the long run?

Most innovations come from just a few large industries.

Explain the relationship between the minimum wage and the unemployment rate for teenagers.