KRUGMAN'S MICROECONOMICS for AP* The Market for Labor Margaret Ray and David Anderson Micro: Econ: 35 71 Module.

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Presentation transcript:

KRUGMAN'S MICROECONOMICS for AP* The Market for Labor Margaret Ray and David Anderson Micro: Econ: Module

What you will learn in this Module : The way in which a worker’s decision about time preference gives rise to labor supply. How to find equilibrium in the perfectly competitive labor market. How equilibrium in the labor market is determined if either the product, or the factor, market is not perfectly competitive.

The Supply of labor Work versus leisure Wages and labor supply

The Supply of labor Substitution effect Income effect Hours of work (week) IE>SE, downward sloping SE>IE, upward sloping Labor supply Hourly wage

Shifts of the Labor Supply Curve Changes in preferences and social norms Changes in population Changes in opportunities Changes in wealth

Equilibrium in the Labor Market Up to this point we have assumed that both the product and labor markets are perfectly competitive There are differences when either the product market or labor market is not perfectly competitive Quantity of Labor (workers) Market Labor Demand Market Labor Supply Wage W* E*

Imperfect Competition in the Product Market Recall that MR < P with imperfect competition. That means the value of the marginal product = MP x MR. With imperfect competition the value of the marginal product is called marginal revenue product (MRP). MRP = MP x MR Quantity of Labor (workers) Wage W* Em MRPL VMPL Ec

Imperfect Competition in the Labor Market A monoposony is a single buyer of a factor of production. With imperfect competition in a factor market, MFC > W Quantity of Labor (workers) Wage 3 MFCL Labor Supply $12 $10

Equilibrium with Imperfect Competition Monopsony power allows firms to pay a wage below MRP Quantity of Labor (workers) Wage E* MFCL Labor Supply W* MRPL MRP