1. Competitive Factor Market
Chapter 18 - Part 3

2. 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

3. 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

4. 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)

5. 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!

6. 2 Free Response Questions
AP FACTOR MARKET
2 Free Response Questions

7. 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……

9. 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 ↑

10. Day #2
Practice m.c. Test

11. H-1B Visas

12. Disability USA