1、,The Economics of Labor Markets,Chapter 18,Factors of Production,Factors of production are the inputs used to produce goods and services.,The Market for the Factors of Production,The demand for a factor of production is a derived demand. A firms demand for a factor of production is derived from its

2、decision to supply a good in another market.,The Demand for Labor,Labor markets, like other markets in the economy, are governed by the forces of supply and demand.,The Versatility of Supply and Demand.,(a) The Market for Apples,(b) The Market for Apple Pickers,Quantity of Apples,Quantity of Apple P

3、ickers,Q,L,P,W,0,0,Price of Apples,Wage of Apple Pickers,Demand,Demand,Supply,Supply,The Demand For Labor,Most labor services, rather than being final goods ready to be enjoyed by consumers, are inputs into the production of other goods.,The Production Function and The Marginal Product of Labor,The

4、production function illustrates the relationship between the quantity of inputs used and the quantity of output of a good.,How the Competitive Firm Decides How Much Labor to Hire,The Production Function.,0,50,100,150,200,250,300,350,0,1,2,3,4,5,6,Quantity of Apple Pickers,Quantity of Apples,The Prod

5、uction Function and The Marginal Product of Labor,The marginal product of labor is the increase in the amount of output from an additional unit of labor. MPL = Q/L MPL = (Q2 Q1)/(L2 L1),Diminishing Marginal Product of Labor,As the number of workers increases, the marginal product of labor declines.

6、As more and more workers are hired, each additional worker contributes less to production than the prior one. The production function becomes flatter as the number of workers rises.,This property is called diminishing marginal product.,The Production Function.,0,50,100,150,200,250,300,350,0,1,2,3,4,

7、5,6,Quantity of Apple Pickers,Quantity of Apples,The Value of the Marginal Product of Labor,The value of the marginal product is the marginal product of the input multiplied by the market price of the output. VMPL = MPL X P,The Value of the Marginal Product of Labor,The value of the marginal product

8、 is measured in dollars. It diminishes as the number of workers rises because the market price of the good is constant.,The Value of the Marginal Product and the Demand for Labor,To maximize profit, the competitive, profit-maximizing firm hires workers up to the point where the value of marginal pro

9、duct of labor equals the wage. VMPL = Wage,The Value of the Marginal Product and the Demand for Labor,The value-of-marginal-product curve is the labor demand curve for a competitive, profit-maximizing firm.,The Value of the Marginal Product of Labor.,0,0,Value of marginal product,(demand curve for l

10、abor),Input Demand and Output Supply,When a competitive firm hires labor up to the point at which the value of the marginal product equals the wage, it also produces up to the point at which the price equals the marginal cost.,What Causes the Labor Demand Curve to Shift?,Output Price Technological C

11、hange Supply of Other factors,The Labor Supply Curve,The labor supply curve reflects how workers decisions about the labor-leisure tradeoff respond to changes in opportunity cost. An upward-sloping labor supply curve means that an increase in the wages induces workers to increase the quantity of lab

12、or they supply.,The Labor Supply Curve,Supply,Wage (price of labor),Quantity of Labor,0,What Causes the Labor Supply Curve to Shift?,Changes in Tastes Changes in Alternative Opportunities Immigration,Equilibrium in the Labor Market,The wage adjusts to balance the supply and demand for labor. The wag

13、e equals the value of the marginal product of labor.,Equilibrium in the Labor Market.,Supply,Wage (price of labor),Quantity of Labor,0,Demand,Equilibrium in the Labor Market,Labor supply and labor demand determine the equilibrium wage. Shifts in the supply or demand curve for labor cause the equilib

14、rium wage to change.,A Shift in Labor Supply.,W1,0,L1,Supply, S1,Demand,A Shift in Labor Supply,An increase in the supply of labor : Results in a surplus of labor. Puts downward pressure on wages. Makes it profitable for firms to hire more workers. Results in diminishing marginal product. Lowers the

15、 value of the marginal product. Gives a new equilibrium.,A Shift in Labor Demand.,W1,0,L1,Supply,Demand, D1,Shifts in Labor Demand,An increase in the demand for labor : Makes it profitable for firms to hire more workers. Puts upward pressure on wages. Raises the value of the marginal product. Gives

16、a new equilibrium.,Three Determinants of Productivity,Physical Capital When workers work with a larger quantity of equipment and structures, they produce more. Human Capital When workers are more educated, they produce more. Technological Knowledge When workers have access to more sophisticated tech

17、nologies, they produce more.,Productivity and Wage Growth in the United States,Productivity and Wage Growth around the World,Other Factors of Production: Land and Capital,Capital refers to the stock of equipment and structures used for production. The economys capital represents the accumulation of

18、goods produced in the past that are being used in the present to produce new goods and services.,Prices of Land and Capital,The purchase price is what a person pays to own a factor of production indefinitely. The rental price is what a person pays to use a factor of production for a limited period o

19、f time.,Equilibrium in Markets for Land and Capital,The rental price of land and the rental price of capital are determined by supply and demand. The firm increases the quantity hired until the value of the factors marginal product equals the factors price.,The Markets for Land and Capital.,Quantity

20、 of Land,Quantity of Capital,Q,Q,P,P,0,0,Rental Price of Land,Rental Price of Capital,Demand,Demand,Supply,Supply,(a) The Market for Land,(b) The Market for Capital,Equilibrium in Markets for Land and Capital,Each factors rental price must equal the value of their marginal product. They each earn th

21、e value of their marginal contribution to the production process.,Linkages Among the Factors of Production,Factors of production are used together. The marginal product of any one factor depends on the quantities of all factors that are available.,Linkages Among the Factors of Production,A change in

22、 the supply of one factor alters the earnings of all the factors.,Linkages Among the Factors of Production,A change in earnings of any factor can be found by analyzing the impact of the event on the value of the marginal product of that factor.,Summary,The three most important factors of production

23、are labor, land, and capital. The demand for factors, such as labor, is a derived demand that comes from firms that use the factors to produce goods and services. Competitive, profit-maximizing firms hire each factor up to the point at which the value of the marginal product of the factor equals its price.,Summary,The supply of labor arises from individuals tradeoff between work and leisure. An upward-sloping labor supply curve means that people respond to an increase in the wage by enjoying less leisure and working more hours.,Summary,The