An example of a nonlinear supply curveIn, supply is the amount of a resource that, providers of, or other are willing and able to provide to the or directly to another agent in the marketplace. Supply can be in currency, time, raw materials, or any other scarce or valuable object that can be provided to another agent. This is often fairly abstract. For example in the case of time, supply is not transferred to one agent from another, but one agent may offer some other resource in exchange for the first spending time doing something. Supply is often plotted as a supply curve, with the quantity provided (the ) plotted horizontally and the (the ) plotted vertically.In the, supply is the amount of a per unit of time that producers are willing to sell at various given prices when all other factors are held constant.
In the, the is the amount of time per week, month, or year that individuals are willing to spend working, as a function of the.In, the is the amount of highly liquid assets available in the, which is either determined or influenced by a country's. This can vary based on which type of money supply one is discussing. M1 for example is commonly used to refer to narrow money, coins, cash, and other money equivalents that can be converted to currency nearly instantly.
Labour supply of self employed workers needs separate analysis from the labour. Observed that the characteristics of the family and the enterprise influence. In labour supply and vice versa. The wage rate Another factor that can influence labour supply is the wage rate offered in the economy and/or industry. Factors that determine the actual wage rate paid would include: the ability of the industry to pay; demand and supply of a particular type of labour/skill; the cost of training; the cost of.
M2 by contrast includes all of M1 but also includes short-term deposits and certain types of market funds. Principles of Economics, Wall Street Journal Edition. Dryden Press, San Diego. Pp. 71–73. ^ Melvin & Boyes, Microeconomics 5th ed. (Houghton Mifflin 2002).
Ayers & Collins, Microeconomics (Pearson 2003)at 66. Rosen, Harvey (2005). Public Finance, p. McGraw-Hill/Irwin, New York. Goodwin, N, Nelson, J; Ackerman, F & Weissskopf, T: Microeconomics in Context 2d ed. Page 83 Sharpe 2009.
^ Goodwin, Nelson, Ackerman, & Weissskopf, Microeconomics in Context 2d ed. (Sharpe 2009) at 83. ^ Samuelson & Nordhaus, Microeconomics, 17th ed. (McGraw-Hill 2001), p. 53.
Samuelson & Nordhaus, Microeconomics, 17th ed. (McGraw-Hill 2001) at 56.
Colander, David C. Microeconomics 7th ed. McGraw-Hill 2008. ^ Melvin & Boyes, Microeconomics 5th ed. (Houghton Mifflin 2002) at 60. Melvin & Boyes, Microeconomics 5th ed.
(Houghton Mifflin 2002) at 56–62. credibility is due to the managers at work. Perloff, J. Microeconomics Theory & Applications with Calculus. 56. Technically the short-run supply curve is a discontinuous function which begins at the origin then tracks the y axis until reaching a point level with the shutdown point.
Melvin & Boyes, Microeconomics 5th ed. (Houghton Mifflin 2002) at 56. Mas-Colell, A., Whinston, M. Oxford University Press., pg 138. 1995.
Perloff, Microeconomics Theory & Applications with Calculus (Pearson 2008) at 19. Png, Managerial Economics (Blackwell 1999). ^ Colander, David C. Microeconomics (7th ed.). 132–133. Colander p.
135. ^ Pindyck & Rubinfeld, Microeconomics 5th ed. (Prentice-Hall 2001) at 335. Pindyck & Rubinfeld, Microeconomics 5th ed. (Prentice-Hall 2001) at 336.
Optimal Demand for Labor: The optimal demand for labor is located where the marginal product equals the real wage rate. The curved line represents the falling marginal product of labor, the y-axis is the marginal product/wage rate, and the x-axis is the quantity of labor. Optimizing Capital and LaborIn the long run, firms maximize profit by choosing the optimal combination of labor and capital to produce a given amount of output.
It’s possible that an automobile company could manufacture 1,000 cars using only expensive, technologically advanced robots and machinery (capital) that do not require any human participation. It’s also possible that the company could produce the same number of vehicles using only employee work (labor), without any assistance from machines or technology. For most industries, however, relying solely on capital or solely on labor is more expensive than using some combination of the two. Factory Worker: Most firms need a combination of both labor and capital in order to produce their product.Firms use the marginal decision rule in order to decide what combination of labor, capital, and other factors of production to use in the creation of output. The marginal decision rule says that a firm will shift spending among factors of production as long as the marginal benefit of such a shift exceeds the marginal cost. Imagine that a firm must decide whether to spend an additional dollar on labor. To determine the marginal benefit of that dollar, we divide the marginal product of labor (MP L) by it’s price (the wage rate, P L): MP L/P L.
If capital and labor are the only factors of production, then spending an additional $1 on labor while holding the total cost constant means taking $1 out of capital. The cost of that action will be the output lost from cutting back on capital, which is the ratio of the marginal product of capital (MP K) to the price of capital (the rental rate, P K). Thus, the cost of cutting back on capital is MP K/P K.If the marginal benefit of additional labor, MP L/P L, exceeds the marginal cost, MP K/PK, then the firm will be better off by spending more on labor and less on capital. On the other hand, if MP K/P K is greater than MP L/P L, the firm will be better off spending more on capital and less on labor. The equilibrium – the point at which the firm is producing the maximum amount of output at a given cost – occurs where MP L/P L=MP K/P K. Key Takeaways Key Points. An increase in demand or a reduction in supply will raise wages; an increase in supply or a reduction in demand will lower them.
The demand curve depends on the marginal product of labor and the price of the good labor produces. Key Takeaways Key Points. Although basic economic theory suggests that there ought to be one prevailing wage rate for all labor, this is not the case. Wage differences are called compensation differentials and can be explained by many factors, such as differences in the skills of the workers, the country or geographical area in which jobs are performed, or the characteristics of the jobs themselves. One common source of differences in wage rates is human capital. More skilled and educated workers tend to have higher wages because their marginal product of labor tends to be higher.
If a certain area is a desirable place to live, the supply of labor will be higher than in other areas and wages will be lower. Education Differentials: Workers seek increased compensation by attaining higher levels of education Geographic Compensation DifferentialsIf a certain part of a country is a particularly attractive area to live in and if labor mobility is perfect, then more and more workers will move to that area, which in turn will increase the supply of labor and depress wages. If the attractiveness of that area compared to other areas does not change, the wage rate will be set at such a rate that workers will be indifferent between living in areas that are more attractive but with a lower wage and living in areas which are more attractive with a higher wage. In this way, a sustained equilibrium with different wage rates across different areas can occur.
Discrimination and Compensation DifferentialsIn the United States, minorities and women make lower wages on average than Caucasian men. Some of this is due to historical trends affecting these groups that result in less human capital or a concentration in certain lower-paying occupations.
Another source of differing wage rates, however, is discrimination. Several studies have shown that, in the United States, several minority groups (including black men and women, Hispanic men and women, and white women) suffer from decreased wage earning for the same job with the same performance levels and responsibilities as white males. Compensating DifferentialNot to be confused with a compensation differential, a compensating differential is a term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job. It is defined as the additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform. One can also speak of the compensating differential for an especially desirable job, or one that provides special benefits, but in this case the differential would be negative: that is, a given worker would be willing to accept a lower wage for an especially desirable job, relative to other jobs.
Key Takeaways Key Points. According to economic theory, workers’ wages are equal to the marginal revenue product of their labor. Wages and Productivity in the U.S.: On a macroeconomic level, this graph shows the disconnect, beginning around 1975, between the productivity of labor and the wage rate in the U.S. If the economic theory were correct in the real world, wages and productivity would increase together. Linking Performance and PaySome of the disconnect between performance and pay can be addressed with alternate pay schemes. While a salary or hourly pay does not directly take into account the quality of work, performance-related pay compensates workers with higher levels of productivity directly.
One example is commission-based pay. In this type of pay scheme, workers receive some percentage of the profit that they generate for their company.
This may be paid on top of a baseline salary or may be the only form of compensation. This type of system is very common among car salespeople and insurance brokers.Another alternative is piece-work, in which employees are paid a fixed rate for every unit produced or action performed, regardless of the time it takes. This is common in settings where it is easy to measure the output of piece work, such as when a garment worker is paid per each piece of cloth sewn or a telemarketer is paid for every call placed. Key Takeaways Key Points. In the long run the supply of labor is a simple function of the size of the population, so in order to understand changes in wage rates we focus on the demand for labor. The marginal product of labor (MPL) is the increase in output that a firm experiences from adding one additional unit of labor. The marginal benefit to the firm of hiring an additional unit of labor is called the marginal revenue product of labor (MRPL).
It is calculated by multiplying MPL by the price of the output. The MRPL represents the firm’s demand curve for labor, which means that the firm will continue to hire more labor until the MRPL is equal to the wage rate.Key Terms.
marginal benefit: The extra benefit received from a small increase in the consumption of a good or service. It is calculated as the increase in total benefit divided by the increase in consumption. marginal revenue product: The change in total revenue earned by a firm that results from employing one more unit of labor.Just as in any market, the price of labor, the wage rate, is determined by the intersection of supply and demand. When the supply of labor increases the equilibrium price falls, and when the demand for labor increases the equilibrium price rises. In the long run the supply of labor is a simple function of the size of the population, so in order to understand changes in wage rates we focus on the demand for labor.To determine demand in the labor market we must find the marginal revenue product of labor (MRPL), which is based on the marginal productivity of labor (MPL) and the price of output.
Conceptually, the MRPL represents the additional revenue that the firm can generate by adding one additional unit of labor (recall that MPL is the additional output from the additional unit of labor). Thus, MRPL is simply the product of MPL and the price of the output.The MPL is generally decreasing: adding a 100th unit of labor will not increase output as much as adding a 99th. Since competitive industries are price takers and cannot change the price of output by changing their level of production, the MRPL curve will have the same downward slope as the MPL curve.From the perspective of the firm, the MRPL is the marginal benefit to the firm of hiring an additional unit of labor. We know that a profit-maximizing firm will increase its factors of production until their marginal benefit is equal to the marginal cost. Therefore, firms will continue to add labor (hire workers) until the MRPL equals the wage rate. Thus, workers earn a wage equal to the marginal revenue product of their labor.
For example, in a perfectly competitive market, an employee who earns $20/hour has a marginal productivity that is worth exactly $20. Key Takeaways Key Points. The opportunity cost of leisure is the wages lost while not working; as wages rise, the cost of leisure increases. The substitution effect means that when wages rise, people are likely to substitute more labor for less leisure. However, the income effect means that as people become wealthier, their demand for normal goods such as leisure increases.
Typically the substitution effect dominates the supply of labor at normal wage rates, but the income effect may come to dominate at higher wage rates. Backward Bending Supply: While normally hours of labor supplied will increase with the wage rate, the income effect may produce the opposite effect at high wage levels.People supply labor in order to increase their utility —just as they demand goods and services in order to increase their utility. The supply curve for labor will shift in response to changes in the same factors that shift demand for goods and services. These include changes in preferences, changes in income, changes in population, and changes in expectations. A change in preferences that causes people to prefer more leisure, for example, will shift the supply curve to the left, creating a lower level of employment and a higher wage rate. Labor DemandAn increase in the demand for labor will increase both the level of employment and the wage rate.
We have already seen that the demand for labor is based on the marginal product of labor and the price of output. Thus, any factor that affects productivity or output prices will also shift labor demand. Some of these factors include:. Available technology (marginal productivity of labor). The skills or education of the workforce (marginal productivity of labor). Level of physical capital (marginal productivity of labor). Price of physical capital (price of output).
![Factors that influence the productivity of labour Factors that influence the productivity of labour](/uploads/1/2/5/5/125584521/341491087.jpg)
Price of substitute or complement goods (price of output). Consumer preferences (price of output)All of the above may cause the demand for labor to shift and change the equilibrium quantity and price of labor. CC licensed content, Specific attribution.
Labour economics. Provided by: Wikipedia. License:. marginal revenue product. Provided by: Wikipedia. License:.
marginal product. Provided by: Wikipedia. License:. capital. Provided by: Wiktionary.
License:. Fator. Provided by: Wikipedia. License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing! Provided by: Flickr. License:.
Value of the Marginal Product. Provided by: Microecon201.
License:. Labor demand. Provided by: Wikipedia. License:. Wage. Provided by: Wikipedia. License:.
Labour economics. Provided by: Wikipedia. License:. Union. Provided by: Wikipedia. License:.
marginal product. Provided by: Wikipedia. License:.
Fator. Provided by: Wikipedia.
License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing! Provided by: Flickr. License:. Factor compensation. Provided by: Wikipedia. License:.
Compensating differential. Provided by: Wikipedia. License:. Economic discrimination. Provided by: Wikipedia.
License:. differential. Provided by: Wiktionary.
License:. discrimination. Provided by: Wiktionary. License:. Fator. Provided by: Wikipedia.
License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing! Provided by: Flickr. License:. Factor compensation.
Provided by: Wikipedia. License:. Police Poland 2 AB. Provided by: Wikipedia.
License:. Johns Hopkins University on Fotopedia. Provided by: Fotopedia.
License:. Piece work. Provided by: Wikipedia. License:. Performance-related pay.
Provided by: Wikipedia. License:. commission. Provided by: Wiktionary. License:.
piece work. Provided by: Wiktionary. License:. Fator. Provided by: Wikipedia.
License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing! Provided by: Flickr. License:.
Factor compensation. Provided by: Wikipedia. License:.
Police Poland 2 AB. Provided by: Wikipedia.
License:. Johns Hopkins University on Fotopedia. Provided by: Fotopedia. License:. US productivity and real wages. Provided by: Wikimedia.
License:. marginal benefit.
Provided by: Wiktionary. License:. Labour economics. Provided by: Wikipedia. License:.
Factor market. Provided by: Wikipedia. License:. marginal revenue product.
Provided by: Wikipedia. License:. Fator. Provided by: Wikipedia. License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing! Provided by: Flickr.
License:. Factor compensation. Provided by: Wikipedia. License:. Police Poland 2 AB. Provided by: Wikipedia.
License:. Johns Hopkins University on Fotopedia.
Provided by: Fotopedia. License:.
US productivity and real wages. Provided by: Wikimedia. License:. Factor compensation. Provided by: Wikipedia. License:. normal good.
Provided by: Wiktionary. License:. Labor demand. Provided by: Wikipedia. License:. Labor economics. Provided by: Wikipedia.
License:. Labor supply. Provided by: Wikipedia. License:.
Opportunity cost. Provided by: Wiktionary. License:. Fator. Provided by: Wikipedia. License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing!
Provided by: Flickr. License:. Factor compensation. Provided by: Wikipedia. License:.
Police Poland 2 AB. Provided by: Wikipedia. License:. Johns Hopkins University on Fotopedia. Provided by: Fotopedia. License:. US productivity and real wages.
Provided by: Wikimedia. License:.
Factor compensation. Provided by: Wikipedia. License:. Labour supply small. Provided by: Wikimedia. License:. collective bargaining.
Provided by: Wiktionary. License:. Labor unions in the United States. Provided by: Wikipedia. License:. Trade union.
Provided by: Wikipedia. License:. strike.
Provided by: Wiktionary. License:. minimum wage.
Provided by: Wiktionary. License:. Fator. Provided by: Wikipedia. License:. All sizes Solar wafer manufacturing Flickr - Photo Sharing!
Provided by: Flickr. License:. Factor compensation. Provided by: Wikipedia. License:. Police Poland 2 AB.
Provided by: Wikipedia. License:. Johns Hopkins University on Fotopedia. Provided by: Fotopedia.
License:. US productivity and real wages. Provided by: Wikimedia. License:. Factor compensation.
Provided by: Wikipedia. License:. Labour supply small.
Provided by: Wikimedia. License:.
UnisonStrikeRallyOxford20060328 KaihsuTai. Provided by: Wikipedia.