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ECON 050 Lecture Notes - Lecture 10: Market Power, Economic Equilibrium, Opportunity Cost

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School
College of The Sequoias
Department
Economics (ECON)
Course
ECON 050
Professor
anderson

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Document Summary

Supply of labor the labor supply curve: shows relationship b/w price of labor and quantity supplied of labor. Labor-leisure trade-off: the opportunity cost of working is giving up leisure; the opportunity cost of leisure is giving up work earnings; However, income is often required for leisure anyway if wages rise: Opportunity cost of leisure is higher; substitution effect (wages increase, substitute in more labor and out leisure) People willing to work less? income effect (you use extra income to purchase more leisure) E. g. you only need /week to be satisfied. you get pay raise. now you can work less hours to get the same satisfaction and more leisure. Do people work more or less when wages increase? (p. 430) At lower wages: substitution levels usually dominate. higher wages -> more working hours since leisure becomes more costly. At higher wages: income effect may dominate, but doesn"t occur for most people. backward-bending labor supply curve.

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Related Questions

Why is the supply curve of labor usually upward-sloping?

a. As the wage increases, the opportunity cost of labor increases, causing individuals to devote more time to work.

b. As the wage increases, purchasing power increases, causing individuals to devote more time to working because leisure is a normal good.

c. As the wage decreases, purchasing power decreases, causing individuals to devote less time to working because leisure is an inferior good.

d. As the wage increases, purchasing power increases, causing individuals to devote less time to working because leisure is a normal good.

e. As the wage increases, the opportunity cost of leisure increases, causing individuals to devote more time to work.

1. A factor demand curve will shift because of

A. a change in the price of a complementary factor

B. the slope of the MP curve

C. the elasticity of demand for the final product

D. the proportion of the factor's cost relative to the total cost

2. Which of the following statements is true

A. The market demand for labor will change as a result of a change in the use of a complementary factor or a substitute factor

B. The market demand curve for labor is found by adding the supply curves for the labor of individual firms

C. A firm's demand for labor is the upward-sloping portion of the MRP curve for labor.

D. The market demand curve for labor is vertical at the profit-maximizing wage.

3. Which of the following statements is true

A. Leisure is a normal good.

B. Leisure is an inferior good.

C. All other things unchanged, an increase in income will decrease the demand for leisure.

D. The demand for leisure is perfectly inelastic.

4. A lower wage

A. has an income effect which is always negative for the quantity of labor supplied.

B. has an income effect but not a substitution effect on the quantity of labor supplied.

C. means a higher income for any given level of labor supplied.

D. has an income effect which is always positive for the quantity of labor supplied.

5. The _______ effect of a _______ wage causes individuals to substitute _______

A. substitution, higher; labor for leisure

B. income; higher; labor for leisure

C. substitution; lower; labor for leisure

D. complementary; constant; leisure for labor

1.The opportunity cost of leisure:

a.increases as wages get higher.

b.decreases as wages get higher.

3.remains the same as wages get higher.

4.has nothing to do with wages.

2.The elasticity of labor demand is higher when:

a.there are many substitutes for labor in the production process.

b.the inputs that could be substituted for labor are relatively expensive.

c.a large amount of labor is essential to the production process.

d.labor productivity falls rapidly when output is increased.

3. The labor demand curve:

a.shifts out when wages fall.

b.shifts in when wages rise.

c.slopes up because of the law of demand.

d.slopes down because of the law of demand.

4.When wages rise, the opportunity cost of:

a.labor falls.

b.labor rises.

c.leisure falls.

4.leisure rises.

Thank you!