Week 10 - Wage determination

Question 1

What are the assumptions of wage determination in perfectly competitive markets?

Answer 1

1. Everyone is wage taker
2. Perfect knowledge
3. Free entry
4. Homogeneous labour

Question 2

What is the reservation wage?

Answer 2

minimum wage required to work > 0

Question 3

Total Market supply

What causes a movement along the curve?

What causes a shift to the curve?

Answer 3

Movement along the curve
- Wage rate

Shift of curve
- Number of workers
- Other non-wage factors

Question 4

What factors influence an individuals supply of hours?

Answer 4

1. reservation wage (value of not working)
2. Market wage

Question 5

What is the advantage on the minimum wage?

Answer 5

1. Protects low skilled workers
2. guaranteed wage for low skilled workers
3. some workers get higher wages resulting in efficeny wages effects
4. firms may shift to capital intensive methods improving productivity

Question 6

disadvantages of the minimum wage

Answer 6

1. higher unemployment at the cost of the government
2. higher costs of labour for firms
3. costly to low-skilled labour to retrain if they cannot find another job
4. Hurts the people its designed to protect

Question 7

What is the extent that the demand for labour changes with wages

Answer 7

1. Price elasticity of demand for the good
2. Labour substitutability
3. Proportion of labour costs to total product cost
4. time period

Question 8

In a competitive labour market, at what point does a employer employ workers?

Answer 8

Competitive labour market

Intersect of ACL and MRPl

MRPL = MR x MPPL

Question 9

In a monopoly labour market, at what point does an employer employ workers?

Answer 9

Monopoly labour market

Intersect of MCL and MRPL