Principles of Economics- Mankiw (5th) 391

Principles of Economics- Mankiw (5th) 391 - CHAPTER 18 T H...

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CHAPTER 18 THE MARKETS FOR THE FACTORS OF PRODUCTION 403 WHAT CAUSES THE LABOR DEMAND CURVE TO SHIFT? We now understand the labor demand curve: It is nothing more than a reflection of the value of marginal product of labor. With this insight in mind, let’s consider a few of the things that might cause the labor demand curve to shift. The Output Price The value of the marginal product is marginal product times the price of the firm’s output. Thus, when the output price changes, the value of the marginal product changes, and the labor demand curve shifts. An in- crease in the price of apples, for instance, raises the value of the marginal product of each worker that picks apples and, therefore, increases labor demand from the firms that supply apples. Conversely, a decrease in the price of apples reduces the value of the marginal product and decreases labor demand. Technological Change Between 1968 and 1998, the amount of output a typical U.S. worker produced in an hour rose by 57 percent. Why? The most
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