BA_315_LN_8_The_Labor_Market

BA_315_LN_8_The_Labor_Market - The Labor Market Lecture...

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1 The Labor Market Lecture Notes #8 BA 315: Economy, Industry, and Competitive Analysis Source: Schiller Chapter 8 Edited by: Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon
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2 Introduction This lecture is a brief and simplified introduction to the labor markets. It explains basic principles of the labor economics and examines issues such as the minimum wage, and labor unions. . The contents of this chapter are centered on challenging students to address the following questions: 1. How do people decide how much time to spend working? 2. What determines the wage rate an employer is willing to pay? 3. Why are some workers paid so much and others so little? Students should be challenged to think of normative as well as positive economic answers to these questions. KEY TERMS Labor Supply Marginal Physical Product (MPP) Opportunity Cost Marginal Revenue Product (MRP) Market Supply of Labor Law of Diminishing Returns Demand for Labor Equilibrium Wage Derived Demand Opportunity Wage
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3 ANNOTATED CONTENTS IN DETAIL I. Labor Supply (Figure 8.1) A. f Definition: Labor Supply - The willingness and ability to work a specific amount of time at alternative wage rates in a given time period, ceteris paribus . B. Headline: "In Moscow, 25,000 Apply for 630 Jobs at McDonalds." (Labor Supply) - When McDonalds opened in Moscow thousands rushed to apply. Wages are about $2.50 per hour, however they will also receive productivity awards. C. Income vs. Leisure 1. Opportunity cost f Definition: Opportunity Cost - The most desired goods or services that are forgone in order to obtain something else. 2. The opportunity cost of working is the amount of leisure time that must be given up in the process. 3. As opportunity cost of work increases, we require correspondingly higher rates of pay. 4. Marginal utility of income declines as more is earned. 5. The upward slope of individual labor supply curve reflects two things (Figure 8.1). a. Increasing opportunity cost of labor. b. Decreasing marginal utility of income. B A Labor supply q 1 w 1 q 2 w 2 QUANTITY OF LABOR (hours per week) W A G E R A T E $ 0 At higher wages, more labor is supplied Labor Supply
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4 D. Headline: "Downtime" (Income vs. Leisure) - Results from a public opinion poll about work, leisure, and income are presented. Most Americans prefer the same hours on the job, the same amount of free time, and their current income. E. Market Supply 1. Market Supply of Labor f Definition: Market Supply of Labor - The total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time period, ceteris paribus . 2. As labor-market entrants increase, quantity of labor supplied goes up. II.
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This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at University of Oregon.

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BA_315_LN_8_The_Labor_Market - The Labor Market Lecture...

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