1、,The Economics of Labor Markets,Chapter 18,Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777.,Factors of Product
2、ion,Factors of production are the inputs used to produce goods and services.,The Market for the Factors of Production,The demand for a factor of production is a derived demand.A firms demand for a factor of production is derived from its decision to supply a good in another market.,The Demand for La
3、bor,Labor markets, like other markets in the economy, are governed by the forces of supply and demand.,The Versatility of Supply and Demand.,(a) The Market for Apples,(b) The Market for Apple Pickers,Quantity of Apples,Quantity of Apple Pickers,Q,L,P,W,0,0,Price of Apples,Wage of Apple Pickers,Deman
4、d,Demand,Supply,Supply,The Demand For Labor,Most labor services, rather than being final goods ready to be enjoyed by consumers, are inputs into the production of other goods.,The Production Function and The Marginal Product of Labor,The production function illustrates the relationship between the q
5、uantity of inputs used and the quantity of output of a good.,How the Competitive Firm Decides How Much Labor to Hire,The Production Function.,0,50,100,150,200,250,300,350,0,1,2,3,4,5,6,Quantity of Apple Pickers,Quantity of Apples,The Production Function and The Marginal Product of Labor,The marginal
6、 product of labor is the increase in the amount of output from an additional unit of labor.MPL = Q/LMPL = (Q2 Q1)/(L2 L1),Diminishing Marginal Product of Labor,As the number of workers increases, the marginal product of labor declines. As more and more workers are hired, each additional worker contr
7、ibutes less to production than the prior one.The production function becomes flatter as the number of workers rises.,This property is called diminishing marginal product.,The Production Function.,0,50,100,150,200,250,300,350,0,1,2,3,4,5,6,Quantity of Apple Pickers,Quantity of Apples,The Value of the
8、 Marginal Product of Labor,The value of the marginal product is the marginal product of the input multiplied by the market price of the output.VMPL = MPL X P,The Value of the Marginal Product of Labor,The value of the marginal product is measured in dollars.It diminishes as the number of workers ris
9、es because the market price of the good is constant.,The Value of the Marginal Product and the Demand for Labor,To maximize profit, the competitive, profit-maximizing firm hires workers up to the point where the value of marginal product of labor equals the wage. VMPL = Wage,The Value of the Margina
10、l Product and the Demand for Labor,The value-of-marginal-product curve is the labor demand curve for a competitive, profit-maximizing firm.,The Value of the Marginal Product of Labor.,0,0,Value of marginal product,(demand curve for labor),Input Demand and Output Supply,When a competitive firm hires
11、labor up to the point at which the value of the marginal product equals the wage, it also produces up to the point at which the price equals the marginal cost.,What Causes the Labor Demand Curve to Shift?,Output PriceTechnological ChangeSupply of Other factors,The Labor Supply Curve,The labor supply
12、 curve reflects how workers decisions about the labor-leisure tradeoff respond to changes in opportunity cost.An upward-sloping labor supply curve means that an increase in the wages induces workers to increase the quantity of labor they supply.,The Labor Supply Curve,Supply,Wage (price of labor),Qu
13、antity of Labor,0,What Causes the Labor Supply Curve to Shift?,Changes in TastesChanges in Alternative OpportunitiesImmigration,Equilibrium in the Labor Market,The wage adjusts to balance the supply and demand for labor.The wage equals the value of the marginal product of labor.,Equilibrium in the L
14、abor Market.,Supply,Wage (price of labor),Quantity of Labor,0,Demand,Equilibrium in the Labor Market,Labor supply and labor demand determine the equilibrium wage.Shifts in the supply or demand curve for labor cause the equilibrium wage to change.,A Shift in Labor Supply.,W1,0,L1,Supply, S1,Demand,A
15、Shift in Labor Supply,An increase in the supply of labor :Results in a surplus of labor.Puts downward pressure on wages.Makes it profitable for firms to hire more workers.Results in diminishing marginal product.Lowers the value of the marginal product.Gives a new equilibrium.,A Shift in Labor Demand
16、.,W1,0,L1,Supply,Demand, D1,Shifts in Labor Demand,An increase in the demand for labor :Makes it profitable for firms to hire more workers.Puts upward pressure on wages.Raises the value of the marginal product.Gives a new equilibrium.,Three Determinants of Productivity,Physical CapitalWhen workers w
17、ork with a larger quantity of equipment and structures, they produce more.Human CapitalWhen workers are more educated, they produce more.Technological KnowledgeWhen workers have access to more sophisticated technologies, they produce more.,Productivity and Wage Growth in the United States,Productivi
18、ty and Wage Growth around the World,Other Factors of Production: Land and Capital,Capital refers to the stock of equipment and structures used for production.The economys capital represents the accumulation of goods produced in the past that are being used in the present to produce new goods and ser
19、vices.,Prices of Land and Capital,The purchase price is what a person pays to own a factor of production indefinitely.The rental price is what a person pays to use a factor of production for a limited period of time.,Equilibrium in Markets for Land and Capital,The rental price of land and the rental
20、 price of capital are determined by supply and demand. The firm increases the quantity hired until the value of the factors marginal product equals the factors price.,The Markets for Land and Capital.,Quantity of Land,Quantity of Capital,Q,Q,P,P,0,0,Rental Price of Land,Rental Price of Capital,Deman
21、d,Demand,Supply,Supply,(a) The Market for Land,(b) The Market for Capital,Equilibrium in Markets for Land and Capital,Each factors rental price must equal the value of their marginal product. They each earn the value of their marginal contribution to the production process.,Linkages Among the Factor
22、s of Production,Factors of production are used together.The marginal product of any one factor depends on the quantities of all factors that are available.,Linkages Among the Factors of Production,A change in the supply of one factor alters the earnings of all the factors.,Linkages Among the Factors
23、 of Production,A change in earnings of any factor can be found by analyzing the impact of the event on the value of the marginal product of that factor.,Summary,The three most important factors of production are labor, land, and capital.The demand for factors, such as labor, is a derived demand that
24、 comes from firms that use the factors to produce goods and services.Competitive, profit-maximizing firms hire each factor up to the point at which the value of the marginal product of the factor equals its price.,Summary,The supply of labor arises from individuals tradeoff between work and leisure.
25、An upward-sloping labor supply curve means that people respond to an increase in the wage by enjoying less leisure and working more hours.,Summary,The price paid to each factor adjusts to balance the supply and demand for that factor.Because factor demand reflects the value of the marginal product o
26、f that factor, in equilibrium each factor is compensated according to its marginal contribution to the production of goods and services.,Summary,Because factors of production are used together, the marginal product of any one factor depends on the quantities of all factors that are available.As a re
27、sult, a change in the supply of one factor alters the equilibrium earnings of all the factors.,The Versatility of Supply and Demand.,The Production Function.,The Value of the Marginal Product of Labor.,The Labor Supply Curve,Equilibrium in the Labor Market.,A Shift in Labor Supply.,A Shift in Labor Demand.,The Markets for Land and Capital.,
