econ unit 13 ppt

LABOUR MARKETS — COMPLETE STUDY NOTES

1. What is Labour Supply? People have 168 hours per week to allocate.

People choose how many hours to work vs leisure.

2. Why Do We Work?

Costs

• ___ of time (giving up leisure)

• Disutility of ___ (working is tiring) 

Benefits

• Wages (money to buy goods/services)

• Personal fulfillment

• Social recognition

• Cost of factors (work may provide benefits)

Trade-off: Leisure vs consumption
More leisure = less income; more work = more income but less leisure.

OC, effort

3. Labour Supply Curve

• At higher wages, people supply more labour.

Upward sloping supply curve: W ↑ → Quantity of labour supplied __

increases

4. __ Labour Markets

• Many firms, many workers.

• Both are price takers—no one can influence the wage.

• Small restaurant hiring servers

• Dentist/lawyer/doctor hiring a receptionist

competitive

5. Profit Maximization by Firms

• Wage (W): marginal cost (MC) of ___ labour
  → MC = ___*******

• Value of Marginal Product (VMP):
  Marginal Benefit of hiring labour
  → VMP = MP × Price of output (P)

Decision Rule - A firm hires workers until: W = VMP

hiring, W

7. VMP Calculation Table

Price of coffee = $4 (because VMP = MP × P) 

L	TP	MP	VMP
0	0	7	28
1	7	6	24
2	13	5	20
3	18	4	16
4	22	3	12
5	25	—	—

This VMP curve is the labour __ curve for the firm.

demand

8. Labour Demand Curve & Schedule

Wage	Quantity of Labour Demanded
28	0.5
24	1.5
20	2.5
16	3.5
12	4.5

Lower wage → more labour __
Higher wage → less labour demanded

demanded

9. Change in Quantity Demanded

• ____ falls from $22 → $14/hour

• Quantity demanded increases from 2 → 4 baristas

__ along the demand curve

wage, movement

10. Increase in Labour Demand (Shift Right)

• ___ price of output

• __ price of related factors

• Lower price of ___

• Better technology

higher, lower, complements

11. Market Power in Labour Markets

• Most labour markets ___ competitive

• Firms often have more bargaining power:

  • Large firms with deep pockets

  • Workers are replaceable and need income

Monopsony - A labour market with a single ___ (big employer). This buyer is called the monopsonist.

aren’t, buyer

********12. Competitive vs Monopsony Employers

Competitive Firm

• Pays the market wage to all employees

• Marginal cost of labour = wage
  → MCL = W

Monopsony (or any employer with market power)

• ___ wage

• Must ____ wages to hire more workers

• This raises the wage for all employees

Therefore: → MCL ___ W

chooses, raise, >

13. Monopsony vs Monopoly Comparison

Market Side	Perfect Competition	Market Power
Supply side	MR = P	MR < P
Demand side	MCL = W	>

MCL > W

14. Competitive Labour Market Equilibrium

• Intersection of ___ (Demand) and Supply

• Efficient quantity and wage

VMP

15. Monopsony Labour Market Outcome

• Monopsony hires ___ labour

• Pays a ___ wage

• Creates ___ (inefficiency)

Monopsonist chooses:

• Hire where ____ = MCL

• Pay the wage from the ___ curve at that quantity

less, lower, DWL, VMP, supply

16. Monopsony Inefficiency

• Too ____ employment

• Wage below competitive level

• Deadweight loss

• Workers harmed

little

17. Minimum Wage in Monopsony

Key claim from slides: Minimum wages can increase employment and ___ if the labour market isn’t competitive.

• A minimum wage set between ____wage and __ wage:

  • Increases __

  • Reduces inefficiency

  • Raises worker welfare

surplus, competitive, monopsony, employment

18. Elasticity of Low-Wage Labour Supply

• Low-wage workers often have ___ labour supply

• Inelastic supply amplifies firm power

inelastic

19. Wage Discrimination

1. By __

• __ pay

• Productivity bonuses

2. By __

• Secret __

• Different pay for similar work based on __

quantity, overtime, identity, identity

20. Bargaining

Bargaining = process by which agents split economic ___.

• Outcomes depend on __ power

• Can lead to inefficiency

• Monopoly/monopsony

• Labour strikes

• War

• Catennaccio (soccer strategy metaphor)

surplus, bargaining

21. Bargaining and Prices

Trade Generates Surplus

• __ parties can benefit

• Amount traded influences surplus ____

Role of Price - Determines how the surplus is __

both, size, split

22. Total Surplus vs Price

Repeated diagrams show:

• Demand curve (D)

• Marginal cost (MC)

• Surplus area changes depending on ___

Key message: Price affects the __ of surplus but not necessarily total surplus (unless prices distort quantity).

price, split

23. Bargaining Asymmetry

• Firms generally have more power: Large corporations vs households

  • Wages often favour __

  • Outcomes may be inefficient or unfair

employers