labour market Flashcards

1
Q

what happens when there is a positive supply shock?

A

shift production fn upwards, MPN increase at every level of input

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2
Q

labour DD assumptions

A

hold total capital stock fixed (short run)
workers are alike
competitive labour mkt
firms max profit

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3
Q

max profit problem

A

max pi(K,N) = AF(K,N) - wN

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4
Q

FOC of max profit prob

A

MPN = W

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5
Q

plot graph of production function

A

plot Y against N
concave and upward sloping

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6
Q

plot graph of labour DD

A

plot w against N
curve is MPN=w, convex and downward sloping

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7
Q

positive supply shock to labour DD graph

A

ND shifts up and to the right. increase MPN at every N

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8
Q

increase size of capital stock to labour DD graph

A

increase K, increase MPN

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9
Q

labour SS: income-leisure trade off

A

max u(w(h-l),l)

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10
Q

FOC of income leisure trade off

A

MRS of leisure for consumption = real wage
MUl/MUc = w

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11
Q

plot graph of income leisure trade off

A

plot c against l, slope is MRS
wh is vertical intercept, h is horizontal intercept
at tangency, MRSlc=w

indiff curve is convex, w BL c=w(h-l), slope= - w

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12
Q

increase in wages to MRS=w graph

A
  1. sub effect
    increase price of leisure relative to consumptions -> fall in l and increase in NS
  2. income effect
    higher wealth, increase in leisure (normal good)

sub effect dominates –> upward sloping NS curve (overall fall in l and increase in c)

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13
Q

factors that shift labour SS

A
  1. wealth –> increase leisure –> fall in NS
  2. expected future real wage
    (same as above)
  3. size of working age pop
  4. labour force participation rate
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14
Q

labour mkt eqm

A

ND=NS

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15
Q

negative supply shock on labour mkt eqm (increase in energy prices)

A

fall in A, fall in MPN for any N. ND shifts down, fall in w and N in eqm

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16
Q

UN rate

A

unemployed/labour force

17
Q

participation rate

A

labour force/adult pop

18
Q

employment ratio

A

employed/adult pop

19
Q

natural rate of UN

A

prevails when output and unemployment are at full employment level

frictional + structural