ECN 203 (7), Factor Markets and Employment

ECN 203 (7), Factor Markets and Employment - Chapter 7:...

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Chapter 7: Factor Markets and Employment 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.
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The Demand For Labor Demand for Labor (N D ) -- firms decision regarding how many workers they wish to hire. Profit maximizing firms under perfect competition make this decision simultaneously with their output decision (Q 0 ), using their production function.
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The Demand for Labor: Causes Wage Rate (W), W (ceteris paribus) N D . Price of Good They Produce (P), P N D . Price of Other Inputs -- Materials (e.g. Energy) -- Physical Capital Technology (Tech)
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The Cost of Other Inputs and the Demand for Labor The effect of a change in the price of other inputs depends upon whether they are a complement or a substitute to labor. Example – suppose that the price of physical capital (P K ) increases. How does the firm respond in their labor hiring?
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Other Inputs and the Demand for Labor Input Complements (e.g. truck and truck driver), P K N D . Input Substitutes
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This note was uploaded on 02/18/2011 for the course ECN 203 taught by Professor Rosenthal during the Spring '11 term at NYU.

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ECN 203 (7), Factor Markets and Employment - Chapter 7:...

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