ECON1101 Lecture Notes - Marginal Revenue, Opportunity Cost, Marginal Product
14 views3 pages
Labour Markets
Labour Demand
• Labour demand (LD) - the relationship between the Q of labour demanded by firms and the
wage.
• The demand for labour is a derived demand.
• LD is downward-sloping due to diminishing MPL.
A Firm's Employment Decision
• MPL – additional output from additional unit of labour → declines as L increases.
• Marginal revenue product of labour (MRPL) – additional revenue from additional (or last) unit
of labour.
• MRPL = MR x MP
• Demand for labour:
• Employer thinks on the margin:
o MC = MC for employer
o MPRL = wage
o w increases → LD decreases
• Output supply: produce where P (=MR) = MC so P = w/MPL or P x MPL = w.
• If a firm maximises profits, it will hire the largest number of workers for which MRPL > W.
• Firms will hire workers up to the point at which the MRPL = W (the wage).
Labour Supply (LS)
• Tie alloatio deisio: alloate 24 hours i a day either i laour arket ork or leisure
non-market work, i.e. labour supply or leisure demand.
• Wage rate is the price of labour or the opportunity cost of not working (leisure).
Effect of Wage Changes: Income and Substitution Effects
• Because the wage is the price of leisure, the higher the wage, the less attractive leisure will
seem relative to work.
• Substitution Effect:
o W increases → opportunity cost of leisure increases → leisure demand decreases →
labour supply increases.
• Income Effect:
o W increases → earnings or labour income increases → leisure demand increases (if
leisure is normal) → labour supply decreases.
• Net Effect:
o If sub > income effect → w increases and LS increases (upward sloping LS curve).
o If sub < income effect → w increases and LS decreases (downward sloping LS curve).
o You can increase or decrease the wage but LS does’t change that much as it is
inelastic.
Union-Nonunion Wage Differentials
• Workers ho a’t fid ork i the uio arket spill oer ito the o-union market.
• An increase of wages in unions lead to a decrease of wages in the non-union markets.
• Inefficient allocation of labour at LU, LN
o MRPL (LU) = $40
o MRPL (LN) = $25
o Switch the workers from U → N
o → Total revenue or value of goods increases.
16. Capital and Financial Markets
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document
This preview shows page 1 of the document.
Unlock all 3 pages and 3 million more documents.
Already have an account? Log in
Get access
Grade+
$40 USD/m
Billed monthly
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers
Related Documents
Related Questions
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|