The demand for inputs is a derived demand, reflecting demand for the firm’s output.

The marginal product of labour is the extra total output when an extra worker is added, with other input quantities unaltered.

The marginal value product of labour is the extra revenue from selling the output made by an extra worker.

A firm with monopsony power faces an upward sloping factor supply curve and must offer a higher factor price to attract more factors. The marginal cost of the input exceeds the factor price. In expanding inputs, the firm bids up the price paid on all inputs already employed.

The marginal revenue product of labour is the change in total output revenue when a firm sells the extra goods that an extra unit of labour input allows it to produce.

The labour force is all individuals in work or looking for work.

The participation rate is the fraction of the population of working age who join the labour force.

The transfer earnings of a factor in a particular use are the minimum payments needed to induce the input to work in that job. Economic rent (not to be confused with income from renting out property) is the payment a factor receives in excess of the transfer earnings needed to induce it to supply its services in that use.

Workers are involuntarily unemployed if they would work at the going wage but cannot find jobs.

Insiders have jobs and are represented in wage bargaining. Outsiders do not have jobs and are unrepresented in wage bargaining.

Efficiency wages are high wages that raise productivity through their incentive effect.

An isoquant shows minimum combinations of inputs to make a given output. Different points on an isoquant reflect different production techniques.