week 10 Flashcards
what is labour market
the avaliability of employment and labour in terms of supply and demand
what is labour supply
the number of people willing to work at different wage rates
two options to spend time - working or leisure
what does a labour supply graph show
indifference curve - utility of leisure and weekly income
budget line - determined by hourly wage
tangent - highest attainable hours of leisure demanded and labour supplied
how does a decline in wage effect the labour supply graph
causes a change in leisure demanded and a change in labour supply
what is the substitution effect on labour supply
always positive
rise of wages increases labour supply
fall of wages reduces labour supply
what is the income effect on labour supply
may be positive or negative
why would supply of labour bend backwards
if at high wages the income effect dominates the substitution effect
how does income tax effect the budget line
causes a kink in the budget line
may encourage workers not to go over a certain pay threshold
what is marginal product of labour
the additional output a firm gets by employing one additional unit of labour
MPL x output price = marginal value product of labour (MVPL)
what is the marginal value product of labour
the money value of the additional output a firm gets by employing one additional unit of labour
it is the labour demand curve of a perfectly competitive profit maximising firm
what is monopoly power in the product market
MPL should be multiplied by MR to give labour demand curve
MRP is left of the MVP
a monopoly produces less output than a competitive firm, employs fewer workers
what is monopsony power in the labour market
MCL is upward sloping
profit maximisation occurs when MCL = MRP but wage is determined by average cost of labour
when do firms gain monopsony power
when workers are not constantly searching for alternative employment
how does minimum wage behave in monopsony
can raise employment
once minimum wage is imposed, MCL becomes the minimum wage
what is human capital theory
a workers wage will be proportional to their stock of human capital
human capital = factors like education, training, experience, intelligence etc
