Labor – The work time and effort that people commit to
producing the goods and services in the economy.
Labor demand curve – a graph that shows the quantity of
labor that firms will want to employ at every given wage rate.
Labor force – The sum of the number of people both employed
and unemployed (labor force = employed + unemployed).
Labor force participation rate – The ratio of the labor
force to the total population that is over 16 years of age. Labor force participation rate = labor
force/total population (that can work).
Labor market – The input/factor market where households
supply work in exchange for wages from firms that demand their labor.
Labor productivity – The amount of output that each worker
can produce per hour.
Labor supply curve – A graph that shows the quantity of
labor that households will want to supply at every given wage rate.
Labor-intensive technology – A production technique that use
a larger amount of human labor relative to physical capital.
Laffer curve – The Laffer curve shows that there is some tax
rate where the response in supply is large enough to have a decrease in the tax
rate result in an increase in tax revenue.
Laissez-faire economy – From the French “allow [them] to
do”. This essentially means that we have
an economy where individuals and firms are allowed to pursue their own self
interest without any central delegation or regulation.
Land – The natural resources we use to produce goods and
services. Could actually be land, or
oil, water, coal, gold, trees, etc.
Land market – The input/factor market where households
supply and sell land or other property for rent.
Law of decreasing returns – As a business uses more of an
input (with one input fixed) the marginal product of that variable input will
eventually decrease. Imagine hiring more
cooks to cook in a kitchen with a fixed size.
Eventually the kitchen will become crowded and productivity will
decline.
Law of Demand – The negative relationship between quantities
demanded and price of a good. Generally,
as the price of a good or service rises, the quantity demanded falls, and as
the price decreases, the quantity demanded rises.
Law of market forces – When there is a surplus in the supply
and demand model, the price will fall.
When there is a shortage, the price will rise. This occurs to bring the market back into
equilibrium.
Law of one price – If transaction and transportation costs
are small, then the price of the same good should be the same in different
countries. This occurs because people
will take advantage of arbitrage opportunities, meaning they can buy a good at
a low price in one country and immediately sell it for more in another country
until opportunities for profit disappear.
Law of supply – The positive relationship between quantities
supplied of a good and its price. For
example, an increase in price will lead to a higher quantity of goods being
supplied, while a lower price will lead to a lower quantity of goods being
supplied.
Legal monopoly – A market where competition and entry are
restricted by the government through an issue of a license, patent, copyright,
or public franchise. Generally done to
take advantage of a natural monopoly condition.
Legal tender – Money that a government has required to be
accepted for all forms of debt.
Lender of last resort – One of the functions of the Federal
Reserve is that it provides funds to banks in trouble who cannot find any other
source of loanable funds.
Life-cycle theory of consumption – A theory that household’s
make lifetime consumption decisions based on their expectations of income over
their entire lifetime.
Linear relationship – When the relationship on a graph is
represented by a straight line.
Liquidity property of money – The property of money that
makes it a good medium of exchange as well as a store of value. Generally, paper money is portable and
accepted by most people and businesses so that it is easily exchanged for goods
and services.
LM curve – A curve illustrating the positive relationship
between the equilibrium value of the interest rate and the aggregate output
(income/Y) in the money market.
Long run – The time frame where the quantities of all
resources/inputs can be changed. Another
way to think about it is there are no fixed inputs, everything is a variable
input.
Long-run average cost curve – A curve that shows the lowest
average total cost where it is possible to produce each output when the firm
has enough time to change all inputs in the production process.
Loss – The negative income earned by an entrepreneur for
running a business.
Lucas supply function – The supply function demonstrates the
idea that output depends on the difference between the actual price level and
the expected price level (as expected by firms, consumers, and the government).
