Coursenotes_ECON301

C 2w p 5 now we sub 5 into our resource constraint

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Unformatted text preview: sure and consumption... (w , P , Tbar) = Tbar 3 c(w , P , Tbar) = 2wTbar 3P wTbar 3w 2M 3P 1/3 M w 2/3 M P How is this the proportion of income spent on consumption and leisure? Recall, the proportion spent on a generic good X is PXX ... M So, the proportion spent on consumption is: P c(w , P , Tbar) M _P_ 2/3 M = 2/3 M P proportion of income to consume goods! 60 So, the proportion spent on leisure is: w (w , P , Tbar) M _w_ 1/3 M = 1/3 M w proportion of income to consume leisure! Labour Market Supply If there is more than one consumer, we can derive the market labour supply curve by the usual horizontal summation technique. Labour Market Equilibrium To determine the labour market equilibrium, we simply find the point of intersection of the market supply curve of labour by consumers and the market demand curve for labour by producers. Ld (w) = Ls (w) This will show us the equilibrium market wage, w*, and quantity of labour, L*, where labour demanded by firms is equal to labour supplied by workers. w Market Supply w* Market Demand L* IMPERFECT COMPETITION IN THE LABOUR MARKET Like any other market, perfect competition is not the only market structure possible for the labour market. For example, we could have the following two extremes of labour market imperfections: 61 L [1] Monopoly: there is a single seller that controls the supply of labour in the market. [2] Monopsony: there is a single buyer that controls the demand for labour in the market. A firm can be a monopoly or a monopsony in the labour market and still operate in a perfectly competitive output market. Similarly, a consumer (or group of consumers) can be a monopoly or a monopsony in the labour market and still face perfect competition in the output market. The following table lists some of the possible combinations of market structures in both the goods and factor markets with the following economic agents: [1] consumers play the role of buyers in the goods market and, at the same time, the role of sellers in the labour market; [2] producers play the role of sellers in the goods market and, at the same time, the role of buyers in the labour market. C...
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