ECN_203__7___Factor_Markets_and_Employment(sp08)

ECN_203__7___Factor_Markets_and_Employment(sp08) - Chapter...

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Chapter 7: Factor Markets This chapter looks at the behavior in factor markets, the demand and supply for inputs used in production. We will focus on the labor market, although the analysis applies to markets for (physical) capital and materials used in production.
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Labor Market Process Looks similar to product market picture. N ( Quantity of Labor ) horizontal axis; W ( Price of Labor )—vertical axis. If competitive market, process adjustment the same as product market. Excess supply & excess demand
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The Demand For Labor Demand for Labor (N D ) -- firms decision regarding how many workers to hire. Labor demand referred to as derived demand from product market. 2 reasons for downward sloping: 1. firms face diminishing marginal product 2. firms are price takers
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Value Marginal Product of Labor (VMP): VMP= (output price) x (marginal product of labor) P of good is constant, while MP of labor eventually falls. This causes VMP to fall. Firms will only hire more labor given that
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This note was uploaded on 04/18/2008 for the course ECN 203 taught by Professor Evensky during the Spring '07 term at Syracuse.

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ECN_203__7___Factor_Markets_and_Employment(sp08) - Chapter...

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