ECON 200 Chapter Notes - Chapter 16: The Purchase Price, Redmond, Washington, National Education Association
Document Summary
In some cases, a firm may choose what combination of factors to use, substituting one or the other: example: tomatoes may be picked either by hand or by machine. Instead, we must look at opportunity costs: the choice is thus between one hour of work and one hour of leisure. In economics, the phrase economic rent describes the gains workers and owners of capital receive from supplying their labor or machinery in factor markets. However, this assumes a perfectly efficient labor market. In an inefficient labor market and the minimum wage is below equilibrium level, a higher wage may transfer surplus from employers to workers: some firms may voluntarily choose to pay workers more to increase productivity. Efficiency wages cause unemployment by keeping wages above equilibrium level: company towns, unions, and labor laws, cases where employers hold market power can be seen as a market with many sellers but only one buyer, or a monopsony.