Lecture_4_post - 9/10/2008 Home NoTrade Solution Lecture 4...

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9/10/2008 1 Lecture 4 Economics 3610 Cornell University Fall 2008 Home No Trade Solution Wages Determination of wages In competitive markets firms hire workers up to the point at which the hourly wage equals the value of one more hour of production. The value of one more hour of labor equals the amount of goods produced in that hour (MPL) times the price of the good. Labor hired up to the point where wage equals P*MPL for each industry. Wages and Other Prices In competitive markets, labor can move freely between industries. Labor will move to the higher paid industry. Equalization of wages between industries Equalization of wages between industries. RHS of #2 is negative slope of PPF WW CC WC CW P MPL P PM P L P L =⋅ = Prices as Relative The price ratio, P W /P C , always denotes the relative price of the good in the numerator, measured in terms of how much of the good in the denominator must be given up in the denominator must be given up.
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Lecture_4_post - 9/10/2008 Home NoTrade Solution Lecture 4...

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