7. Labour Markets - Labour Supply Curve (Market) Flashcards
What shape is the supply curve for a whole industry? & what is on each axis?
It is an upward sloping linear curve with real wage on the y axis and no. of workers on the x axis
Why is the individual supply curve backward bending but the whole industry linear & upward sloping?
Bc another effect dominates the income effect which causes backward bending supplies curves. As wages rise people trained to be in that industry but economically inactive or working elsewhere will rejoin that labour force causing supply to rise. Therefore, wages rise, supply rises.
What effect will a rise/fall in real wages have on labour supply?
A rise in wages = an extension of supplyA fall in wages = a contraction of supply
What factor will effect the labour supply curve of individual firms?
The type of labour market they’re operating in, perfectly competitive or monopsony
What will the supply curve of labour look like for a firm in a perfectly competitive market & why?
The labour supply curve will be totally elastic - a horizontal line - bc the firm is a wage taker and cannot effect wages at all. This means that the supply curve is also the AC & MC curve bc each worker costs the same = average and each worker brings the same extra cost = marginal cost.
What will the supply curve of labour look like for a firm in a monopsony market & why?
The supply curve will be linear upward sloping - bc the firm is a wage maker so can dictate the wages they offer. However firms are constrained by there supply curve - if they choose to hire one more worker at a higher wage than all there others they have to pay every worker that same higher rate - this causes the MC curve to be twice as steep as the AC = S curve.
