ECON 2301 Chapter 10

Demand for a factor of production:

-derived demand -firm's demand for labor comes from the demand for the good for which labor is a factor of production

Price of any productive resource:

-directly related to the demand for the final good/service -demand for a factor of production depends on the demand for the output produced

Increased wages =

-increase in quantity of labor supplied

Featherbedding:

-practice of requiring an employer to hire more workers than needed or to adopt work procedures which appear pointless just to employ more workers or to limit production in keeping with union rules

Increased labor productivity =

-rightward shift of the demand curve for labor

Factors of production/productive resources:

-the inputs used to produce goods/services

Improvements in the productivity of labor:

-increase wages -demand curve shifts right/supply curve remains same = increased wage rate

Additional worker increases output from 72 to 78 units and product price is $6, marg. revenue product from additional worker =

-$36 -78-72 = 6 -$6x6 = $36

Amount of national income that goes to wages and salaries for labor services:

-75% -includes pay scale of ALL workers

Marginal-resource cost (marg. cost of labor):

-additional cost incurred for employing an additional unit of labor

Marginal-revenue product of labor:

-additional revenue generated from one extra unit of labor

Derived Demand example:

-an automobile firm faces an increase in the demand for cars it supplies to the market -leads to increase in demand for auto workers -demand changes for a good = demand for labor required changes in the production process for that good

Profit-maximizing firms:

-attempt to maximize the difference between total revenue and total cost (economic profit) -also called total approach to profit maximization

Marginal approach:

-based on the marginal principle -increase output as long as the marginal benefit exceeds marginal cost...until production level is equal

Evaluating the contribution of a worker to its profits:

-calculate worker's contribution to revenue minus (-) worker's wage -more workers = more profit (if marg. revenue product exceeds market wage) -if marg. revenue product is below market wage = lower profit

Demand for software engineers increases more slowly than supply:

-decrease in wages of software engineers -increased demand = curve shifts right (higher $) -decreased demand = curve shifts left (lower $)

Real wages of workers rise when:

-demand for labor increases faster than supply

Factors that cause the labor supply curve to shift left:

-increased income from other sources than employment -Ex.: winning the lottery -may be less likely to work at a job

Contributions to higher wages:

-increases in tech. advances -rapid increase in demand for labor -increased unionization -decreased non-unionization -higher education levels of workers

Deterioration of job conditions =

-leftward shift in labor supply curve

When labor is a firm's ONLY variable input in the production process, a profit-max. firm will continue to employ more workers as long as:

-marg. revenue product of labor is greater than the marg. resource cost (until equal) -increase output as long as the marg. benefit exceeds marg. cost

Market demand curve for labor shifts LEFT when (RIGHT for opposite):

-product decreases in demand -product decreases in price -labor productivity decreases

Qualities for increased productivity derived from unions:

-reduces worker turnover -effective communication in areas of discontent is greater -morale improves -motivation in employees is higher

Market Demand Curve for Labor:

-relationship between the wage rate and quantity of labor employers wish to hire

Decrease in non-wage income of workers =

-rightward shift of labor supply curve

Market supply curve for Labor:

-shows the relationship between the wage rate and the quantity of labor workers are willing to supply -positive relationship between the wage rate (price of labor) and the quantity of labor workers are willing to supply -workers/individuals: supply labor -firms: demand labor

Example of investment in human capital:

-summer internship at a law firm filled by someone attending school -knowledge/skills acquired through experience -education/on-the-job training

Contributions to increased worker productivity:

-technological advances -improvements in workers' skills -additional capital or land to work with

Union jobs wages in comparison to nonunion jobs:

-wages are 15% higher