Lecture+23+April+20

Lecture+23+April+20 - Todays agenda Markets for factors of...

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Today’s agenda Markets for factors of production Profit-maximizing demand for an input Utility-maximizing supply of an input Distribution of income Inequality and poverty Coming attraction… Final Exam College Avenue Main Gym Thursday, May 5 8 to 11 am Not in Hickman 138!
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Importance : Incomes are determined there: Explain incomes Explain distribution of income among consumers Factor Markets pq nn 11 2 2 ++ + L
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Demand for factors of production Demand for an input is a derived demand Aggregate demand = sum of all firms’ demands
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Profit-maximizing input demand Assume One variable input: L Firm is a price taker in output market input market Hire more labor as long as MR(labor) > MC(labor) MC(labor) = P L MR(labor) = proceeds from selling the worker’s marginal product = (P output ) (MP L ) (P output ) (MP L ) = “marginal revenue product of labor” = MRP L
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Demand for labor Q/L L MP L
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Demand for labor Q/L L MP L $/L L P O MP L
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Demand for labor Q/L L MP L 17 5
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Demand for labor Q/L L MP L 17 5 $/L L P O MP L 17 Suppose P O = $4
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Demand for labor Q/L L MP L 17 5 $/L L P O MP L 17 20 Suppose P O = $4
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Demand for labor $/L L P O MP L w 1
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Demand for labor
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Demand for labor
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Demand for labor
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Demand for labor Marginal revenue product of labor IS the demand curve for labor
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Comparative statics Increase in price of output raises labor demand Increase in productivity raises labor demand Increase in K (generally) raises demand for L by increasing MP L
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Supply of a factor leisure income 24
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Supply of a factor leisure income 24 24w 1
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Supply of a factor leisure income 24 24w 1 24w 2
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Supply of a factor
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Supply of a factor
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Supply of a factor Labor $/hour w 1 w 2
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Supply of a factor
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Supply of a factor
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A tax cut has just increased a worker's net (take-home) wage rate. Therefore A. the opportunity cost of her leisure has increased and she may either increase or decrease her labor supply.
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Lecture+23+April+20 - Todays agenda Markets for factors of...

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