Lecture 22 Noncompetitive Factor Markets. 3 questions u Market power on goods market and demand for labor u Buyers Market Power: Labor Market.

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Presentation transcript:

Lecture 22 Noncompetitive Factor Markets

3 questions u Market power on goods market and demand for labor u Buyers Market Power: Labor Market

Competitive Demand

Equilibrium: Competitive Model

Monopoly Demand

Equilibrium in LM w/p y

Monopoly and LM u Increasing Labor by 1 gives less than MPL of revenue u Monopoly demands less labor u The reduction of employment depends on elasticity

Monopsony u Market power on “buyers” side u Most important monopsony: Labor market u Monopsony and minimal wage rate

Monopsony

Monopsony: Secret of Happiness

Monopsony: Optimal Choice

Minimal Wage Rate

Minimal Wage rate: Monopsony u Increases Labor in equilibrium u Increases wage in equilibrium u Restores efficiency

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