Econ 201 Chapter 14

Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly.

You would expect the presence of unions to lead to higher pay for members. This would lead to a lower quantity of workers hired.

How does the presence of a labor union change negotiations between employers and workers?

The labor union allows all workers to negotiate as a group, so the employer has to choose between reaching a mutually acceptable bargain or losing all his workers.

What is the marginal cost of labor?

The marginal cost of employing labor is the change in total labor costs from employing one extra worker.

What is a bilateral monopoly?

A bilateral monopoly exists when a market has only one supplier and one buyer.

What is a monopsony?

A labor market where there is only one employer

What is a perfectly competitive labor market?

As one where firms can hire all the labor, they wish at the going market wage. Graphically, this means that firms face a horizontal supply curve for labor

How does monopsony affect the equilibrium wage and employment levels?

Because the monopsonist is the only demander of labor in the market, it has the power to pay wages below the marginal revenue product of labor and to hire fewer workers than a perfectly competitive firm.

What determines the demand for labor for a firm operating in a perfectly competitive output market?

In a perfectly competitive labor market, firms can hire all the labor they want at the going market wage. Therefore, they hire workers up to the point L1 where the going market wage equals the value of the marginal product of labor. An increase in demand for the firm's product drives up the product's price, which increases the firm's demand for labor. This means that the actual equilibrium wage will be set in the market, and the supply of labor to the individual firm is perfectly elastic at the market rate.

What determines the demand for labor for a firm with market power in the output market?

The demand for labor curve is a downward sloping function of the wage rate. The market demand for labor is the horizontal sum of all firms' demands for labor. The supply for labor curve is an upward sloping function of the wage rate. This is because if wages for a particular type of labor increase in a particular labor market, people with appropriate skills may change jobs, and vacancies will attract people from outside the geographic area. The market supply for labor is the horizontal summation of all individuals' supplies of labor.