Microeconomics Corso E John Hey. Chapter 26 The LABOUR MARKET The supply of labour. The demand for...
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Transcript of Microeconomics Corso E John Hey. Chapter 26 The LABOUR MARKET The supply of labour. The demand for...
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MicroeconomicsCorso E
John Hey
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Chapter 26
• The LABOUR MARKET • The supply of labour.• The demand for labour.• Equilibrium.• Minimum wage legislation?
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Two questions for you
• An increase in the wage rate implies an increase in the supply of labour?
• Minimum wage legislation is a Good Thing?
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The supply of labour• We use the analysis of Chapter 6• The space: (T,C)• T: free (non-working) time• C: consumption• The supply of labour – Lo where• Lo =24 – T• ...depends upon the preferences.• Obviously both consumption and leisure
time are desirable (are both goods).• Let us go to Maple…
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The demand for labour• We use the analysis of Chapters 11,
12 and 13.• We begin in a space with...• ... Ld the demand for labour on the
horizontal axis... • ... and total Costs total and total
revenues on the vertical axis.• Let us assume we are in a short
period with fixed costs equal to 5, and the wage fixed at 1 per unit.
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The optimality condition for the demand for labour
• The slope of the total cost curve must be equal to the slope of the total revenue curve.
• The slope of the total cost curve is equal to the wage rate.
• The slope of the total revenue curve is equal to the price of output multiplied by the marginal product of labour.
• Hence the optimality condition: the real wage rate (the wage rate divided by the price of output) must be equal to the marginal product of labour.
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A minimum wage?
• What happens in this market if the government introduces a minimum wage?
• Obviously at a level higher than the equilibrium wage in the competitive market.
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Chapter 26
• Goodbye!
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