Lecture 9: Work, Pay, And Income Inequality Flashcards
Why does the Labor Demand Curve slope downward and to the right?
Because of the Law of Diminishing Marginal Returns
MP(L)
Marginal Production of Labor:
The additional output produced by adding one more unit of labor.
MVP(L)
Marginal Value Product of Labor:
The value associated with the marginal product of labor.
Substitution effect
Ceterus Paribus, if a person has two choices, and the opportunity cost of one rises, he will be more likely to engage in the other.
Low Wage worker has a low opportunity cost of leisure. Thus the worker will work fewer hours.
Income Effect
At very high income levels, the marginal utility of an additional dollar of income is quite low. For this reason as the wage rate rises, workers may work less, opting to enjoy leisure because of the high income.
As wage rate increases above some point, the quantity of labor supplied may begin to fall.
What would cause the labor supply curve to shift right?
1) Increase in the number of workers in a market
2) A change in the work preferences of laborers
- I.e. If workers decide to work more relative to their leisure consumption.
What determines the MP(L)?
Education, skill, physical / mental ability, technology in production, work ethic, etc.
Income
The money earned over a given period of time for a service performed. We generally think of our yearly income as our earnings from working a job. (Flow)
Wealth
Accumulated assets minus liabilities. (Stock)
Gigi Index
A Measure of income inequality which ranges in value from 0 to 1
The Lorenz Curve
Shows the actual cumulative distribution of incomes.
Gigi Coefficient
A/A+B
A* is the the area to the left of the Lorenz Curve on the graph
B* the area to the right of the Lorenz Curve on the graph.
