An increase in the supply of labor, shown in Panel (c), reduces the wage to W 2 and increases employment to L 2. A reduction in labor demand, shown in Panel (b), reduces employment and the wage level. Panel (a) shows an increase in demand for labor the wage rises to W 2 and employment rises to L 2. We use lowercase letters to show quantity for a single firm and uppercase letters to show quantity in the market.įigure 12.11 Changes in the Demand for and Supply of Labor The firm hires l 1 units of labor, a quantity determined by the intersection of its marginal revenue product curve for labor MRP 1 and the supply curve s 1. This wage also equals the firm’s marginal factor cost. An individual firm takes that wage as given it is the supply curve s 1 facing the firm. Employment equals L 1 units of labor per period. The wage W 1 is determined by the intersection of demand and supply in Panel (a). The operation of labor markets in perfect competition is illustrated in Figure 12.10 “Wage Determination and Employment in Perfect Competition”. That means that a firm’s choices in hiring labor do not affect the wage. In the context of the model of perfect competition, buyers and sellers are price takers. For one firm, changing the quantity of labor it hires does not change the wage. Because each firm is a price taker, it faces a horizontal supply curve for labor at the market wage. Once the wage in a particular market has been established, individual firms in perfect competition take it as given. Wages are determined by the intersection of demand and supply. Supply in a particular market depends on variables such as worker preferences, the skills and training a job requires, and wages available in alternative occupations. The supply curve for labor depends on variables such as population and worker preferences. We add the demand curves of individual firms to obtain the market demand curve for labor. We have seen that a firm’s demand for labor depends on the marginal product of labor and the price of the good the firm produces. Describe the ways that government can increase wages and incomes.Describe the forces that can raise or lower the equilibrium wage in a competitive market and illustrate these processes.Explain and illustrate how wage and employment levels are determined in a perfectly competitive market and for an individual firm within that market.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |