ECON 101 CH11
Which is NOT a key labor supply decision? - Should you work or do something else? - How many hours should you work? - How many hours should you study? - How should you choose your occupation?
- How many hours should you study?
The labor market is completely competitive T/F
- True
In a competitive labor market, employers pay the market wage T/F
- True; if you pay less than market wage then hair stylists will just go get paid somewhere else
As baby boomers age, more people seek in-home elder care for their aging parents. What happens to the labor market for home-health aids?
- Wage will increase, and more jobs will be available
What is the rational rule for employers:
- hire more workers if the marginal revenue product is >= the wage
What is the income effect
- how people change when they have more income - higher wage increases your income leading you to chose more leisure instead of work
What is the subsitution effect
- how people respond to a change in relative prices - higher wage increases return to work instead of leisure leading you to work more
The _____ principle helps you understand how labor demand shifts when economic conditions change.
- interdependence
What is the marginal revenue product
- measures the marginal revenue from hiring an additional worker - marginal revenue product = (marginal product of labor) X (price of product)
The _____ of supply of labor measures workers' responsiveness to changes in wages.
- price elasticity
What does the downward-sloping labor demand curve represent in the graph of the wage of hair stylists?
- the decisions of hair salon owners
What is a derived demand
- the demand for an input derives from the demand for the stuff that input produces
What is the marginal product of labor
- the extra production that comes from hiring an extra worker
What is your labor supply
- the time you spent working in that market
What is physical capital
- tools, machinery, and structures that are inputs in the production process
What is the rational rule for workers
- work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure
What are the 4 things that effect the market labor demand curve
1. changes in demand for your product 2. changes in price of capital 3. better management techniques and productivity gains 4. nonwage benefits, subsidies, taxes
What are the 4 factors that shift labor supply curve
1. changing wages in other occupations 2. changing the number of potential workers 3. changing benefits of not working 4. nonwage benefits, employment subsidies, and income taxes
what is the 3 step recipe for analyzing the labor market
1. determine which curve is shifting: labor supply, labor demand, both? 2. determine if shift is increase or decrease 3. determine how wages and number of jobs will change in the new equilibrium
What does the market labor supply curve depend on
1. how many people decide to work 2. how many hours existing workers put in 3. which occupations people chose
