71: The Market for Labor Flashcards
time allocation
how many hours to spend on different activities, such as work vs leisure
leisure
time available for purposes other than earning money
= a normal good
optimal level of labor supply
marginal utility of 1 hr leisure = marginal utility of 1 hr’s wages
substitution effect
when wage rate inc, supply of labor inc b/c the opp cost of leisure inc and there is more incentive to work
–> upward sloping supply
income effect
when wage rate inc, you become richer (need to work less to make same amount of money), and thus consume more leisure, a normal good, and supply less labor
–> downward sloping supply
individual labor supply curve
shows how the quantity of labor supplied by an individual depends on their wage rate
when does the substitution effect dominate?
low wage rates
when does the income effect dominate?
high wage rates
backwards bending labor supply curve
a labor supply curve that loops back due to changes in relative strength of substitution and income effects
causes of shifts in labor supply curve (4)
changes in…
1) preferences and social norms
2) population
3) opportunities / superior alternatives
4) wealth
price taking firm’s labor demand curve
VMPL
imperfect firm’s labor demand curve
MRPL = MPL x MR
marginal revenue product of labor
marginal factor cost of labor
MFCL = additional cost of hiring one more worker
= market wage in perfect comp
monopsony
single buyer in the factor market –> labor supply slopes up and MFCL > W
general equilibrium for imperfect competiton
hire workers until MRPL = MFCL (D = S)
