Chap013.1 - product ( VMP ). Chapter 13: Labor Markets,...

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1 Labor Markets, Poverty, and Income Distribution Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 2 Introduction ± Observations z People with similar skills earn very different incomes. z Some of the worlds wealthiest people come from poor countries. z Many Americans are homeless and malnourished. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 3 The Economic Value of Work ± The Market for Labor z Equilibrium wage and quantity are determined by the supply of and demand for a specific category of labor. z Changes in supply and demand will change the equilibrium wage and quantity. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 4 The Economic Value of Work ± Observation z Wages will differ among workers with different levels of productive ability. ± The wage equals the value of marginal
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Unformatted text preview: product ( VMP ). Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 5 The Economic Value of Work How much will Rennie and Laura earn at Mackintosh Pottery? z Price = $1.10/pot in competitive market z Clay, the only input, available at no cost . z Cost = $0.10 handling fee/pot. z Rennie produces 100 pots/wk and Laura produces 120 pots/wk. Chapter 13: Labor Markets, Poverty, and Income Distribution Slide 6 The Economic Value of Work Value of Marginal Product z Marginal product of labor x the net price of each unit sold Rennies VMP = (100 pots)($1.10 - .10) = $100 Lauras VMP = ($120 pots)($1.10 - .10) = $120 Assuming a competitive labor market: z Rennies wage will be $100. z Lauras wage will be $120....
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