econ 001 demand for labor
econ 001 demand for labor Econ 002
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This 1 page Class Notes was uploaded by Sinziana Bunea on Saturday January 23, 2016. The Class Notes belongs to Econ 002 at University of Pennsylvania taught by Luca Bossi in Summer 2015. Since its upload, it has received 36 views. For similar materials see Intro to Econ Macro in Economcs at University of Pennsylvania.
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Date Created: 01/23/16
Demand for labor Derived demand: demand for a factor of production is derived from the demand for the goods or services produced by the factor. Marginal revenue product of labor-> change in total revenue that results from employing one more unit of labor MRP= Marginal productivity x Marginal revenue The MRP is a demand curve for workers (diminishing marginal productivity). Anything that changes MRP will change demand. The demand for labor will change if: Price of the firm’s output changes Price of other factors of production change (e.g machinery price- usually if machinery price decreases, marginal productivity increases, but if the machine is a substitute for humans, it’ll go down) Technology change Complementary inputs: when an increase in one input increases the MPP of the other input Substitutes: when an increase in one input decreases the MPP of the other input. A firm hires the quantity of labour at which the marginal revenue product of labor equals the wage rate. It produces the quantity of output at which MR=MC. If wages go up, substitution effect says that you work more, less leisure. Income effect says more leisure, less work. At low wages, the substitution effect dominates (if minimum wage were increased, people would want to work more hours). At high wages, income effect dominates (they already have a lot of money, so leisure is more important for them).
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