Market for Labor

Question 1

perfectly competitive firms SR hiring decision

Answer 1

• physical capital, product price and wage is fixed
• assumes diminishing returns set in right away
• hire each hour where VMP>wage

Question 2

VMP (define and formula)

Answer 2

• value of marginal product (markets value of the hours MP)
• (price)(MP)
• how much rev inc. when you add one more hour of labor
• firm operates at a point on VMP curve, demand for labor curve is equal to VMP curve

Question 3

meaning of the wage

Answer 3

• cost of 1 hour of a specific type of labor

- approximately equal to VMP of the next/ last labor hour at any competitive firm

Question 4

looking at immigration

Answer 4

-if wage inc. when immigrant goes to new country, they are contributing more to the economy, VMP curve inc.

Question 5

wage (formula)

Answer 5

wage=VMP (perfectly competitive market

wage=(product price)(MP of last hour hired)

Question 6

real wage

Answer 6

• the value of the $ made by workers in how much stuff they can buy (how much stuff can be bought after an hour of work)
• if wages double and prices of goods double, real wage is the same
• if wages double and prices of goods stays the same, real wage doubles

Question 7

labor productivity (define and formula)

Answer 7

• can measure amount produced in the average hour of work
• (GDP/total hours work)=(total output/total hours worked)
• recorded quarterly
• growth rate of the real wage is about equal to growth rate of $ wages- growth rate of prices

Question 8

what effects productivity

Answer 8

• 1)level of technology
  2) amount of physical capital/ worker
• 3)education/ training

1 and 3 have the biggest effect