Chapter Two Continued Flashcards
The demand for labor
Firms total output and the way in which they combine labor and capital depend on three forces:
1) p…… D…..
2) the amount of l…. And c…… They can acquire at given prices
3) the choice of t……….. Available to them
1) product demand
2) the amount of labor And capital They can acquire at given prices
3) the choice of technologies Available to them
When we study the demand for labor, we are interested in finding out how the number of workers employed by a firm or set of firms is affected by changes in one or more of these three forces.
What would happen to the quantity of labor demanded if the wage rate increased? (Assuming all other things are constant)
First, higher wages imply higher costs and usually higher product prices.
Because consumers respond to higher prices by buying less, employers would tend to reduce their levels of output and employment
This decline in employment is called..?
The effect on desired employment of a smaller scale of production.
Scale effect
What would happen to the quantity of labor demanded if the wage rate increased? (Assuming all other things are constant)
Second, as wages increase, employers have incentives to cut costs by adopting a technology that relies more on capital and less on labor.
Desired employment would fall because of a shift toward a more c……-i…….. Mode of production.
This second effect is termed s……….. E….., because as wages rise, capital is s……… For labor in the production process.
Capital-intensive
Substitutional effect
Substituted
The effects of various wages on employment levels might be summarized in a table showing the labor demanded at each wage level.
D….. S…….
Demand schedule
The relationship between wages and employment could be graphed as a d….. C….
Demand curve
Curve has a negative slope, indicating that as wages rise, less labor is demanded
On a graph, wage rate is placed on the …….. Axis despite being an independent variable in the context of labor demanded by a firm
Vertical
Tells us how the desired level of employment, measured in either labor hours or numbers of employees, varies with changes in the price of labor when the other forces affecting demands are held constant
Demand curve
What happens to the demand curve when, at every possible wage rate, the number of workers demanded had increased?
The curve shifts to the right.
Increase in demand for product
What happens when the supply of capital changes.
Capital prices fell to 50% of their prior level
1) Increase the demand for labor at each wage level
- Reduced costs stimulate increases in production
2) fall in capital prices would be a substitution effect, where firms adopt more capital-intensive technologies in response to cheaper capital
- firms would substitute capital for labor and would use less labor to produce a given amount of output than before
With less labor being desired at each wage rate and output level, the labor demand curve tends to shift to the left
A fall in capital generates two opposite effects on the demand for labor
The scale effect will push the labor demand curve to the ?
While the substitution effect will push it to the?
Right
Left
Either effect could dominate
A labor demand curve graphically shows the labor desired as a function of the w… R…
When the w… Changes and other forces are held unchanged, one moves along the curve
However, when one of the other forces changes, the labor demand curve s…..
Wage rate
Wage
Shifts
Market, industry, and firm demand.
The demand for labor can be analyzed on three levels:
1) to analyze the demand for labor by a particular firm, we would examine how an …….. in the wage of machinists, say, would affect their employment by a particular aircraft manufacturer
2) to analyze the effects of this wage increase on the employment of machinists in the entire aircraft industry, we would utilize an industry …… curve
3) finally, to see how the wage increase would affect the entire labor market for machinists in all industries in which they are used, we would use a m….. …… curve
1) to analyze the demand for labor by a particular firm, we would examine how an increase in the wage of machinists, say, would affect their employment by a particular aircraft manufacturer
2) to analyze the effects of this wage increase on the employment of machinists in the entire aircraft industry, we would utilize an industry demand curve
3) finally, to see how the wage increase would affect the entire labor market for machinists in all industries in which they are used, we would use a market demand curve
F…, I……., and m….. l…. demand curves vary in shape to some extent because scale and substitution effects have different strengths at each level.
The scale and substitution effects of a wage change work in the same direction at each level, so that firm, industry, and market demand curves all slope downward.
Firm, industry, and market labor demand curves vary in shape to some extent because scale and substitution effects have different strengths at each level.
The scale and substitution effects of a wage change work in the same direction at each level, so that firm, industry, and market demand curves all slope downward.
Over very short periods of time, employers fine it difficult to substitute capital for labor (or vice versa), and customers may not change their product demand very much in response to a price increase
S….-R.. Labor demand curves
Short-run labor demand curves
It takes time to fully adjust consumption and production behavior.
Over long periods of time, responses to change in wages or other forces affecting the demand for labor are larger and more complete.
L…-R.. Demand curves
Long-run demand curves
The supply of labor to a particular market is positively/negatively related to the wage rate prevailing in that market, holding other wages constant.
Positively
If the supply curve is showing the going wage, the curve will be..?
Is a reflection of supply decisions made among alternatives that are perfect substitutes for each other.
Horizontal
A firm could get away with paying less than the going wage rate if they offer n………… Jobs.
More pleasant working conditions, longer paid vacations, Ect.
Noncomparable
The wages they pay to their workers must be pretty close to the going wage if they face competition in the labor market.
Neither individual workers nor individual firms can set a wage much different from the going wage and still hope to transact.
W… T…..
Wage takers
The w… That prevails in a particular labor market is heavily influenced by labor supply and demand, regardless of whether the market involves a labor union or other nonmarket forces
Wage
Indicates how many workers would enter the market at each wage level, holding the wage in other occupations constant.
M….. S….. C….
Market supply curve
As wages rise, two things happen:
1) more workers would choose to enter the market and look for jobs (movement along the …… curve)
2) increasing wages would induce employers to seek fewer workers (movements along …… curve)
1) more workers would choose to enter the market and look for jobs (movement along the supply curve)
2) increasing wages would induce employers to seek fewer workers (movements along demand curve)
The wage rate at which demand equals supply
M…..-c……. W…
Market-clearing wage
A higher demand for a job is a right or left shift in the demand curve?
Right shift
The market wage can increase of the labor supply curve shifts to the..?
Left
Creates a shortage at the old equilibrium wage
In the case of a leftward shifting labor supply curve, the increased market wage is accompanied by a decrease in the…?
Is also accompanied by a rightward shift in l…. D….., the market wage can rise dramatically
Equilibrium level of employment
Labor demand
A fall in the market-clearing wage rate would occur if there were increased supply or reduced demand.
An increase in supply would be represented by a r…….. shift of the supply curve, as more people entered the market at each r…….. shift of the supply curve, as more people entered the market at each wage.
This r…….. shift would cause a surplus to exist at the old equilibrium wage and lead to behavior that reduced the wage
- equilibrium employment level has increased
- a decrease (left shift) in labor demand would also cause a decrease in the market-clearing wage, although such a shift would be accompanied by a fall in employment.
An increase in supply would be represented by a rightward shift of the supply curve, as more people entered the market at each rightward shift of the supply curve, as more people entered the market at each wage.
This rightward shift would cause a surplus to exist at the old equilibrium wage and lead to behavior that reduced the wage
Laws, customs, or institutions constraining the choices of individuals and firms.
N…….. Forces
Nonmarket forces
It is commonly believed that labor markets adjust more quickly when market forces are calling for wages to rise as opposed to pressuring them to…?
Fall
If this happens, then those markets observed to be in disequilibrium for long periods will tend to be ones with above-market wages
-implies that the supply of labor exceeds the number of jobs being offered
If enough markets are experiencing above-market wages, the result will be widespread…?
Unemployment
We define workers as …….. If their wages are higher than the market-clearing wage for their job
Overpaid
Because a labor surplus exists for jobs that are overpaid, a wage above market has two implications:
1) employers are paying more than necessary to produce their output; they could cut wages and still find enough qualified workers for their job openings.
If they did cut wages they could expand output and make their product…?
2) more workers want jobs than can find them. If wages were reduced a little, more of these disappointed workers could…?
A wage above market thus causes consumer prices to be higher and output to be smaller than is possible, and it creates a situation in which not all workers who want the jobs in question can get them
1) employers are paying more than necessary to produce their output; they could cut wages and still find enough qualified workers for their job openings.
If they did cut wages they could expand output and make their product cheaper and more accessible to consumers
2) more workers want jobs than can find them. If wages were reduced a little, more of these disappointed workers could find work.
Wages are below market-clearing levels
Employers have difficulty finding workers to meet the demands of consumers, and a labor shortage exists
Have trouble keeping workers they do find
Underpaid
The concepts of underpayment and overpayment have to do with the s….. i….. Of producing desired goods and services in the least-costly way
Therefore we compared wages paid with the m…..-c……. Wage
At the level of individuals, it is often useful to compare the wage received in a job with ones r………. W…, the wage below which the worker would refuse (or quit) the job in question
Social issue
Market clearing wage
Reservation wage
The amount by which ones wage exceeds ones reservation wage in a particular job is the amount of his or her….?
Economic rent
