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The Market for Labor

Module. Micro: Econ:. 35. 71. The Market for Labor. KRUGMAN'S MICROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. The way in which a worker’s decision about time preference gives rise to labor supply.

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The Market for Labor

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  1. Module Micro: Econ: 35 71 The Market for Labor • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • The way in which a worker’s decision about time preference gives rise to labor supply. • How to find equilibrium in the perfectly competitive labor market. • How equilibrium in the labor market is determined if either the product, or the factor, market is not perfectly competitive.

  3. The Supply of labor • Work versus leisure • Wages and labor supply

  4. Hourly wage Labor supply IE>SE, downward sloping SE>IE, upward sloping Hours of work (week) The Supply of labor • Substitution effect • Income effect

  5. Shifts of the Labor Supply Curve • Changes in preferences and social norms • Changes in population • Changes in opportunities • Changes in wealth

  6. Wage Market Labor Supply Equilibrium in the Labor Market W* Market Labor Demand • Up to this point we have assumed that both the product and labor markets are perfectly competitive • There are differences when either the product market or labor market is not perfectly competitive Quantity of Labor (workers) E*

  7. Imperfect Competition in the Product Market W* VMPL MRPL • Recall that MR < P with imperfect competition. That means the value of the marginal product = MP x MR. • With imperfect competition the value of the marginal product is called marginal revenue product (MRP). MRP = MP x MR Wage Em Ec Quantity of Labor (workers)

  8. Imperfect Competition in the Labor Market MFCL Labor Supply $12 $10 • A monoposony is a single buyer of a factor of production. • With imperfect competition in a factor market, MFC > W Wage 3 Quantity of Labor (workers)

  9. Equilibrium with Imperfect Competition MFCL Labor Supply W* • Monopsony power allows firms to pay a wage below MRP MRPL Wage MRP E* Quantity of Labor (workers)

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