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Ch10_Labour_market - Chapter 10 Labour market David Begg...

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Chapter 10 Labour market David Begg, Stanley Fischer and Rudiger Dornbusch, Economics , 7th Edition, McGraw-Hill, 2003
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12.2 Some important questions Why does a top professional footballer earn so much more than a professor? Why does an unskilled worker in the EU earn more than an unskilled worker in India? Why do market economies not manage to provide jobs for all their citizens who want to work? Why are different methods of production used in different countries?
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12.3 The demand for labour Derived demand: the demand for a factor of production is derived from the demand for the output produced by that factor. Equalizing wage differential the monetary compensation for the differential non-monetary characteristics of the same job in different industries so workers have no incentive to move between industries.
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12.4 Demand for factors in the long run The optimum mix of capital and labour depends on the relative prices of these factors This helps to explain why more labour-intensive means of production are used in some countries where labour is relatively abundant. A change in the price of one factor will have both output and substitution effects A rise in the wage rate leads to substitution towards more capital-intensive techniques but also leads to lower total output
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12.5 The demand for labour in the short run The marginal product of labour - MPL The extra total output when an extra worker is added, with other input quantities unalterred The marginal value product of labour - MVPL
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