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Lecture_2_post - ecture 2 Lecture 2 Overview of the Labor...

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Unformatted text preview: ecture 2 Lecture 2 Overview of the Labor Market oadmap Roadmap verview of labor demand 1. Overview of labor demand. 2. Overview of labor supply. 3. Labor market equilibrium and firm mployment. employment. We will go into greater detail on these concepts in subsequent lectures. he Markets in Which Firms Operate The Markets in Which Firms Operate abor Demand Labor Demand • Q: Suppose you own a data entry business. You can digitize documents by either (a) having people do it by hand, or (b) scanning the raw documents. Would you hire more or fewer workers if: – The wage for workers increases. – A new machine is invented that allows workers to read and input data faster. – The price of scanners increases. emand for digitizing increases (you can now charge – Demand for digitizing increases (you can now charge more per scan). – A new digital mapping software that can recognize handwriting suddenly falls in price. abor demand depends on: Labor demand depends on: he price of labor 1. The price of labor 2. How productive labor is 3. The demand for output (product) ow substitutable labor is for other 4. How substitutable labor is for other inputs 5. The price of other inputs Labor Demand: Wage Schedule (holding factors 2 through 5 fixed) Wage Schedule: Labor Demand is Downward Sloping. • The wage schedule above shows the amount of labor demanded for any given market wage ( holding other factors constant ). – Key Point: Changes in employment demand due to wage changes represent movements along the labor demand curve. • o, what happens if we do not hold factors So, what happens if we do not hold factors 2 through 5 fixed? – (i.e. what if we can also adjust capital and the total amount of output produced?) ecall Ec 101 Recall Ec 101 • Consider a consumer choosing between purchasing food and clothing. If the price of clothing increases how does this affect the demand for clothing and food? What are the effects? – Substitution effect: you buy less clothing (and more food) because it is relatively more xpensive than food expensive than food. – Income effect: you buy less of everything ecause your purchasing power has gone because your purchasing power has gone down. Indifference curve and BC with two goods....
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This note was uploaded on 01/09/2010 for the course ILRLE 2400 at Cornell.

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Lecture_2_post - ecture 2 Lecture 2 Overview of the Labor...

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