Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 - The Economics of Labor Markets
Chapter 18 of 36 The Markets for the Factors of Production
Section 4 of 19
…
Figure 1 – The Versatility of Supply and Demand
The basic tools of supply and demand apply both to goods and to labor services.
Panel (a) shows how the supply and demand for apples determine the price of apples.
Panel (b) shows how the supply and demand for apple pickers determine the wage of apple pickers.
…
Labor markets, like other markets, reach equilibrium through the forces of supply and demand.
They are different from most markets because labor demand is a derived demand.
Most labor services are not final goods to be enjoyed by consumers but rather are inputs for production of other goods.
When labor is a final good it is services such as haircuts.
…
How does a firm decide the quantity of labor to demand?
Each week an apple company must decide how many apple pickers to hire to harvest its crop.
After the workers are hired and the apples are picked, the firm pays the workers, sells the apples, and keeps what is left as profit.
…
We make two assumptions about the apple company
-1- the firm is competitive
-2- the firm is profit-maximizing
…
-1- We assume the firm is competitive, in both
· the market for apples, where the firm is a seller
· the market for apple pickers, where the firm is a buyer
A competitive firm is a price taker, here because there are many firms selling apples and hiring apple pickers.
A single firm has little influence over the price it gets for apples or the wage it pays to apple pickers.
As a competitive firm, this apple company
· takes the apple price and the labor wage as given
· only must decide how many apples to sell and how many workers to hire
…
-2- We assume the firm is profit-maximizing
The firm does not place much, if any, importance on
· the number of workers it has
· the number of apples it produces
The firm primarily cares about profit, which equals the total revenue from the sale of apples minus the total cost of producing them.
The firm's supply of apples and demand for workers therefore results from its primary goal of maximizing profit.
… …
primary goal and secondary goal
shu mokuhyō to fuku mokuhyō
主目標と副目標

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