ECON 1001 Chapter 13 Homework

In a competitive labor market, a worker's wage will be _____ the value of the marginal product of labor.

equal to

As wages rise, the _____ effect will lead people to consume more leisure.

income

If the demand for nurses rises, this will tend to _____ the equilibrium wage for nurses.

increase

If the wage in a given occupation increase, you generally expected the quantity of labor supplied in that occupation to _____.

increase

If the wages in a given occupation increase, you would generally expect the quantity of labor supplied in that occupation to _____.

increase

marginal product of labor (MP)

the additional output a firm gets by employing one additional unit of labor

value of marginal product of labor (VMP)

the dollar value of the additional output a firm gets by employing one additional unit of labor - a worker's pay in long-run equilibrium will be equal to his or her VMP

Table 13.1 Employment and Productivity in a Woodworking Company (pg 352)

Adirondack should keep hiring as long as the next worker's VMP is at least $350 per week (the market wage). The first four workers have VMPs larger than $350, so Adirondack should hire them. But since hiring the fifth worker would add only $280 to weekly revenue, they should not hire that worker.

The Supply Curve of Labor: An equivalent way to pose the same question is to ask whether consumers will consumer less leisure at high wage rates than at low wage rates. (pg 353)

Reason: By themselves, The Principles of Economic Theory do not provide an answer to the questions because of a change in wage rate exerts two opposing effects of the quantity of leisure demanded. 1. Substitution Effect (higher wage = leisure is more expensive) 2. Income Effect (higher wage = consumers have more purchasing power = more leisure)

The Demand Curve for Labor: An employer's reseveration price for a worker is the most the employer could pay without suffering a decline in profit.

Reason: This reservation price for the employer in a perfectly competitive labor market is simply the value of the worker's marginal product (VMP). Because of the Law of Diminishing Returns, we know that the marginal product of labor (and hence VMP) declines in the short run as the quantity of labor rises. The individual employer's demand curve for labor in any particular occupation. ex: computer programmers are shown in a down-sloping function of the wage rate.

The worker's attractiveness to the employer depends not only on how many goods he or she produces, but also on the price of the good and on the wage rate.

Reason: for example, because the VMP rises when the product price rises, an increase in product price will lead employers to hire more workers.

Market Shift: As more tasks have become computerized in recent decades, the demand for programmers has grown, shown by the shift for D1 to D2 in Figure 13.2.

Reason: the equilibrium in the market for computer programmers occurs at the intersection of the relevant supply and demand curves. The increase in demand has led to an increase in the equilibrium level of programmers from L1 to L2 and a rise in the equilibrium wage from W1 to W2.

Example 13.2 Hiring

The fact that the marginal product of labor declines with the number of workers hired is a consequence of the Law of Diminishing Returns.

Figure 13.3: An Economy with Two Nonunionized Labor Markets

We see that peging the union wage above equilibrium level actually reduces the value of total output. If labor were allocated efficiently between the two markets, its value of marginal product would have to be the same for each. Otherwise, the total value of output could be increased by moving workers from the low VMP market to the high VMP market.

compensating wage differential

a difference in the wage rate- negative or positive- that reflects the attractiveness of a job's working conditions

labor union

a group of workers who bargain collectively with employers for better wages and working conditions

human capital theory

a theory of pay determination that says a worker's wage will be proportional to his or her stock of human capital

The value of the marginal product of labor is the dollar value of the _____ output a firm gets by employing an additional unit of labor.

additional

human captial

an amalgam of factors such as education, training, experience, intelligence, energy, work habits, trustworthiness, and initiative that affects the vale of a worker's marginal product

employer discrimination

an arbitrary preference by an employer for one group of workers over another

If an individual's wage increase, the number of hours they choose to work _____.

could either increase or decrease

In the short-run, as firms hire additional workers, the marginal product of labor _____.

decreases

As firms employ more labor in the short run, the value of the marginal product of labor _____.

decreases (law of diminishing returns)

A decrease in the price of beer will lead to the number of workers employed in beer manufacturing to _____.

fall

According to the human capital theory, the higher the worker's stock of capital, the _____ will be the worker's wage.

higher

If the value of the marginal product of labor is greater than the market wage, the firm should ______.

hire more workers

A workers human capital includes factors such as _____.

intelligence creativity motivation education

A firm's labor demand curve is its _____.

value of marginal product of labor curve