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 14 of 20
…
Like all prices the price of labor, the wage, depends on supply and demand.
Because the demand curve reflects the value of the marginal product of labor, at equilibrium workers receive the value of their marginal contribution to the production of goods and services.
…
Table 1
Value of marginal product of labor, column 4
· as additional workers are hired, column 1
· marginal product of labor declines, column 3
Each additional worker adds less to volume of production.
The two main determinates of wages in competitive labor markets are
· the wage adjusts to balance supply and demand for labor
· the wage equals the value of marginal product of labor
…
Figure 4 shows the labor market in equilibrium.
When the market is in equilibrium
· wage and quantity of labor have adjusted to balance supply and demand
· each firm has bought as much labor as is profitable at the equilibrium wage
If an additional worker would add even $1 to profit, that worker is hired.
If an additional worker would subtract even $1 from profit, that worker is not hired.
In the case of Table 1 three workers are hired.
…
At supply and demand equilibrium the firm has maximized profit.
For competitive firms this means no economic profit but no loss, just enough profit to cover costs including opportunity cost to stay in business.
The firm does this by hiring workers until the value of the marginal product equals the wage.
Per Table 1, equilibrium is achieved by hiring three workers.
Any event that changes the supply of or demand for labor, such as change in price of the product or labor, must change the equilibrium wage and the value of the marginal product by the same amount.
… …
equilibrium is achieved
kinkō ga tassei sareru
均衡が達成される
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 14 of 20
…
Figure 4 - Equilibrium in a Labor Market
Like all prices the price of labor, the wage, depends on supply and demand
Because the demand curve reflects the value of the marginal product of labor,
at equilibrium workers receive the value of their marginal contribution to the production of goods and services
…
Table 1
Value of marginal product of labor, column 4
· as additional workers are hired, column 1
· marginal product of labor declines, column 3
Each additional worker adds less to volume of production.
The two main determinates of wages in competitive labor markets are
· the wage adjusts to balance supply and demand for labor
· the wage equals the value of marginal product of labor
…
Figure 4 shows the labor market in equilibrium.
When the market is in equilibrium
· wage and quantity of labor have adjusted to balance supply and demand
· each firm has bought as much labor as is profitable at the equilibrium wage
If an additional worker would add even $1 to profit, that worker is hired.
If an additional worker would subtract even $1 from profit, that worker is not hired.
In the case of Table 1 three workers are hired.
…
At supply and demand equilibrium the firm has maximized profit.
For competitive firms this means no economic profit but no loss, just enough profit to cover costs including opportunity cost to stay in business.
The firm does this by hiring workers until the value of the marginal product equals the wage.
Per Table 1, equilibrium is achieved by hiring three workers.
Any event that changes the supply of or demand for labor, such as change in price of the product or labor, must change the equilibrium wage and the value of the marginal product by the same amount.
… …
equilibrium is achieved
kinkō ga tassei sareru
均衡が達成される
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