W7: labor markets

factors of production

labor land, capital, entrepreneurship

derived demand

Firm’s demand for a factor of production is derived from its decision to supply a good in another market

labor market

demand& employers, supply & workers

marginal product of labor

additional output produced by an additional unit of labor/ diminshing - marginal product of labor input declines as the quantity of labor increases. value = MPL multiplied by the market price of the output (product)

demand for labor curve

value of the MPL (VPML=MR) curve becomes the Labor Demand curve MR = MC (marginal wage)

shifts of labor demand curve

product price change, tech change, higher the wages the less labor the firm will hire, the lower the wages the more labor the firm will hire.

supply of labor

trade-Off between Work and Leisure, more work = less leisure

upward sloping labor supply curve

increase in the wage induces workers to increase the quantity of labor they supply

shifts of labor supply curve

attitudes toward work, alternative opportunities, immigration

equilibrium in labor market

Wages equal the value of the marginal product of labor