perfect labour market Flashcards
What is labour?
People available for employment to produce output
What is capital?
Machines and equipment used by labour to produce output
What is land?
Site of production (commonly merged with capital)
What are the costs to a firm regarding labour?
- Wage
- Salary
What is the cost to a firm regarding Capital?
- Rent
- Price
What are the two main costs of working to the worker?
- Must sacrifice leisure
- Work may be unpleasant, challenging, boring etc
What are the two effects of work?
- Substitution effect
- Income effect
What is the substitution effect?
Higher wages, a person will work more as there is a greater opportunity cost of leisure
What is the income effect?
Higher wages imply worker can afford more leisure time
What does elasticity of labour supply depend on?
- Difficulty to change jobs
- Whether we’re in the long or short run
What is the marginal input rule?
MR = MCL / MPP
What are assumptions of perfectly competitive labour markets?
- Buyers of labour operate in a perfectly competitive output market
- Buyers of labour (firms) are wage takers
- Buyers and sellers have complete information
- Workers are wage takers
- Entry for workers is “free”
What is the market structure of a perfect comp. labour market
- Many small sellers (workers)
- Low barriers to entry
- Undifferentiated sellers (workers)
- Many small firms
When is the labour market in equilibrium?
- Firms choose optimal employment levels, given market wage
- Workers choose optimal supply levels, given market wage
- Sellers supply as much as buyers want to purchase
What do labour market equilibrium conditions imply?
- The price in the product market is determined by supply and demand
- Market wage is determined by market supply and demand
- A seller’s output is determined by seller specific supply and demand
