3 table production and marginal product for computers

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Unformatted text preview: ers 0 1 2 3 4 5 6 7 8 Ryan W. Herzog (GU) Computers Produced 0 62.5 120 172.5 220 262.5 300 332.5 360 Marginal Product Value of MP (P=1000) 62.5 57.5 52.5 47.5 42.5 37.5 32.5 27.5 62,500 57,500 52,500 47,500 42,500 37,500 32,500 27,500 Labor Market February 5, 2014 14 / 40 Supply and Demand in the Labor Market An Increase in Productivity (Figure 5.4) Figure : Labor demand following an increase in productivity Ryan W. Herzog (GU) Labor Market February 5, 2014 15 / 40 Supply and Demand in the Labor Market Labor-Leisure Tradeoff Households are the primary suppliers of labor. Household must choose between working and leisure. We like leisure and want to consume as much leisure as possible, but we also need to work. As wages increase the cost of taking time off of work increases, the cost of leisure has increased. As wages increase we substitute away from leisure into working (called the substitution effect). At the same time as wages increase we can afford to take more time off of work, we can buy more leisure. As wages increase we purchase more leisure (called the income effect). In the end, at low wage rates the substitute effect dominates, but the income effect takes over as wages increase. Ryan W. Herzog (GU) Labor Market February 5, 2014 16 / 40 Supply and Demand in the Labor Market Labor Supply Because of the income and substitution effects, the labor supply curve is increasing at an increasing rate. For an equal increase in the wage, labor supply is increasing at a decreasing rate. An increase in labor supply would occur as a result of more immigration, women entering the labor force, older retirement age, increase in birth rates, and a decrease in labor income taxes. Ryan W. Herzog (GU) Labor Market February 5, 2014 17 / 40 Supply and Demand in the Labor Market Labor Supply Curve (Figure 5.5) Figure : Labor Supply Curve Ryan W. Herzog (GU) Labor Market February 5, 2014 18 / 40 Supply and Demand in the Labor Market An increase in labor supply(Figure 5.6) Figure : An increase in labor supply Ryan W. Herzog (GU) Labor Market February...
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