5.2: Changes in Factor Demand and Factor Supply

Shifters

Shifters Of The Demand For Labor

1. Price Of The Output

   1. If The Price Of The Product Goes Up, The Worker That Produces The Product Becomes More Valuable
   2. Derived Demand: The Demand For Resources Is Derived From The Products They Produced

2. Productivity In The Worker

   1. A More Productive Worker Is More Valuable To A Business

3. Change In The Price Of Other Resources

   1. Substitute Resources (eg. Turning To Artificial Intelligence To Replace Workers)
   2. Complementary Resources (eg. Price Of A Product Impacts Demand For Labor)

Shifters Of Supply Of Labor

• Other Than Wage, What Influences One’s Chances Of Getting A Job In A Specific Field?

  1. Education And Training
  2. Availability Of Alternative Options
  3. Immigration And Mobility Of Workers
  4. Cultural Expectations
  5. Working Conditions
  6. Preferences For Leisure

Perfectly Competitive Labor Market

Characteristics

• Many Small Firms Are Hiring Workers
  • No Single Firm Is Large Enough To Manipulate The Market
• Many Workers With Identical Skills
• Wage Is Constant
• Workers Are Wage Takers
  • Firms Can Hire As Many Workers As They Want At A Wage Set By The Industry
• Should Continue To Hire Until MRP = MRC

Marginal Resource Cost

• Marginal Resource Cost (MRC): The Additional Cost Of An Additional Resource (worker)

• In Perfectly Competitive Labor Markets, The MRC Equals The Wage Set By The Market And Is Constant

  MRC = [change In Total Cost]/[change In Inputs]

• Related To Marginal Revenue Product (notes In Section 5.1)

Imperfect Competition: Monopsony

Characteristics

• One Firm Hiring Workers
  • The Firm Is Large Enough To Manipulate The Market
• Workers Are Relatively Immobile
• Firm Is Wage Maker
  • To Hire Additional Workers, The Firm Must Increase The Wage
• Examples
  • Central American Sweatshops
  • Midwestern Small Towns With Large Car Factories
  • NCAA

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