Competitive Factor Market Chapter 18 - Part 3

Entire Labor Market New College Graduates New College Graduates Increase in Supply of Workers Increase in Demand for Workers All market structures are wages takers at current wage rate MFC = Horizontal Supply curve of labor for 1-Firm at current wage rate

One Company Factor Market Entire Factor Market One Company Factor Market General Electric Recent College Graduates Wages W2 D2 Q2 -------------------- ----------------- Wages D1 S MRP1 ---------- Q1 E1 MFC2 W2 ---------------- E2 E2 $45,000 -------------- E1 MFC1 $45,000 ------------- Q2 Q1 Qty Qty Individual Firms are Wage-Takers at current wage rate If Wages ↑ => become Wage-Taker at ↑ wage rate

When does MRP Shift Right? Entire Factor Market Factor Market Low Skilled Workers 1 Firm Low Skilled Labor Wages/day Wages/day D S MRP2 MRP1 $120 -------------- E1 MFC $120 ------------- Q Qty Qty Demand for Product ↑ (derived demand) MP ↑ Price Complement Resource (machine) ↓ => (hire more workers!) Price Substitute Resource => indeterminate! ( could rise, fall or unchanged)

MP and MC When MP ↑ => MC ↓ When MC ↓ => output increases So firms hire more inputs (workers, machines) MC1 => MC2 Leads to ↑ Qty from Qm1 => Qm2 More workers & machines hired!

2 Free Response Questions AP FACTOR MARKET 2 Free Response Questions

Falling Income of Low-Skilled Workers All Low-Skilled Workers 1 Firm Low Skilled Workers Wages S1 MFC MRP ---------- E1 W1 Q1 S2 D2 --------- W1 E1 MFC2 W2 ---------- ------------- w2 D Q1 Quantity 1) outsourcing of jobs & automation Demand ↓ => wages ↓ 2) ↑ low skilled immigration Supply ↑ => wages ↓ End Result: Qty indeterminate => wages fall End Result: More employment but Lower wages……

Rising Automation => Impact on Labor Market Qty D 1 S ------------- P Q E -------------- Low - Skilled Labor College Educated Labor D2 D2 End Result: Gap between high skilled & low skilled workers ↑

Day #2 Practice m.c. Test

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