微观经济学2014级版1417章ch

1、Markets for Factors of ProductionCHAPTER17After studying this chapter you will be able toExplain the link between a factor price and factor eExplain what determines demand, supply, the wage rate, and employment in a competitive labor marketExplain why wage rates can be higher or lower than those in

2、a competitive labor marketExplain what determines demand, supply, the interest rate, saving, and investment in the capital marketExplain what determines demand, supply, price, and the rate of use of a nonrenewable resourceExplain the concept of economic rent and distinguish between economic rent and

3、 opportunity cost Many Happy ReturnsSome people make very happy returns, like Katie Courics $15 million a year.Why arent all jobs well paid?What determines wage rates?What determines the returns to other factors of production?Factor Prices and esGoods and services are produced using factors of produ

4、ctionlabor, capital, land, and entrepreneurship.Factor es are: Wages earned by labor. Interest earned by capital. Rent earned by land. Normal profit earned by entrepreneurship.Economic profit (loss) is paid to (borne by) the firms owners, who might be the entrepreneur or the stockholders.Factor Pric

5、es and esFactors of production are traded in markets.Demand and supply is the main tool used to understand a competitive factor market.Firms demand factors of production, and households supply them.The demand for a factor of production is a derived demand because it is derived from the demand for th

6、e goods and services produced by the factor.Factor Prices and esFigure 17.1 shows a factor market.The e earned by the owner of a factor of production equals the equilibrium factor price multiplied by the equilibrium factor quantity.Factor Prices and esA change in demand or supply changes the equilib

7、rium price, quantity, and e.An increase in the demand for a factor of production raises its equilibrium price, increases its equilibrium quantity, and increases its e.An increase in the supply of a factor of production lowers its equilibrium price, increases its equilibrium quantity, and has an ambi

8、guous effect on its e.The effect of an increase in the supply of a factor of production on its e depends on the elasticity of demand.Labor MarketsLabor markets allocate labor and the price of labor is the real wage rate (the wage rate adjusted for inflation).In 2002, labor earned 72 percent of total

9、 e in the United States.The average hourly wage rate was close to $25, of which $21 was paid as a wage or salary and $4 was paid as supplementary benefits.Figure 17.2 on the next slide shows a sample of earnings levels in the United States in 2002.Labor MarketsIn 2002, the national wage rate was $21

10、 an hour.Most jobs pay a wage rate below the national average.Some of the jobs that pay above the average exceed it by a large amount.Labor MarketsThe Demand for LaborThere is a link between the quantity of labor that a firm employs and the quantity of output that it plans to produce.A firms demand

11、for labor is the flip side of its supply of output. A firm produces the profit-maximizing quantitythe quantity at which marginal revenue equals marginal cost.To produce the profit-maximizing quantity, a firm hires the profit-maximizing quantity of labor. Labor MarketsMarginal Revenue ProductThe marg

12、inal revenue product of labor (MRP) is the change in total revenue that results from employing one more unit of labor.The marginal revenue product of labor equals the marginal product of labor multiplied by marginal revenue.MRP = MP MR.Labor MarketsFor a perfectly competitive firm, marginal revenue

13、equals price.So the marginal revenue product of labor equals the marginal product of labor multiplied by the price of the productMRP = MP P.Table 17.1(p. 388) shows how the marginal revenue product of labor is calculated for a competitive firm.Labor MarketsDiminishing Marginal Revenue ProductFor a f

14、irm in perfect competition, marginal revenue product diminishes as the quantity of labor employed increases because the marginal product of labor diminishes.For a firm in monopoly (monopolistic competition or oligopoly) marginal revenue product diminishes for a second reason:Marginal revenue is belo

15、w price and to sell more the firm must lower its price (and its marginal revenue).Labor MarketsThe Labor Demand CurveThe marginal revenue product curve for labor is the demand curve for labor.If marginal revenue product exceeds the wage rate, the firm increases profits by hiring more labor.If margin

16、al revenue product is less than the wage rate, the firm increases profits by hiring less labor.If marginal revenue product equals the wage rate, the firm is employing the profit-maximizing quantity of labor.Labor MarketsFigure 17.3 shows the relationship between a firms marginal revenue product and

17、demand for labor.The bars show marginal revenue product, which diminishes as the quantity of labor employed increases. Labor MarketsThe marginal revenue product curve passes through the mid-points of the bars.The MRP of the 3rd worker is $12 an hour. So at a wage rate of $12 an hour, the firm hires

18、3 workers on its demand for labor curve.Labor MarketsEquivalence of Two Conditions for Profit MaximizationThe firm has two equivalent conditions for maximizing profit. They are1. Hire the quantity of labor at which the marginal revenue product of labor (MRP) equals the wage rate (W).2. Produce the q

19、uantity of output at which marginal revenue (MR) equals marginal cost (MC).Table 17.2 (p. 390) shows why these conditions are equivalent.Labor MarketsBegin with the first condition: MRP = W.This condition can be rewritten as: MR MP = W.Divide both sides by MP to obtain MR = W/MP.But W/MP = MC.Replac

20、e W/MP with MC to obtain the second condition for maximum profit, MR = MC.Labor MarketsChanges in the Demand for LaborThe demand for labor changes and the demand for labor curve shifts if:1. The price of the firms output changes2. The prices of other factors of production change3. Technology changes

21、Table 17.3 (p. 391) summarizes the influences on a firms demand for labor and separates them into factors that change the quantity of labor demanded and those that change the demand for labor.Labor MarketsMarket DemandThe market demand for labor is obtained by summing the quantities of labor demande

22、d by all firms at each wage rate. Because each firms demand for labor curve slopes downward, so does the market demand curve.Labor MarketsElasticity of Demand for LaborThe elasticity of demand for labor measures the responsiveness of the quantity of labor demanded to a change in the wage rate. The e

23、lasticity of demand for labor depends on the Labor intensity of the production process Elasticity of demand for the product Substitutability of capital for laborLabor MarketsThe Supply of LaborPeople allocate their time between leisure and labor and this choice, which determines the quantity of labo

24、r supplied, depends on the wage rate. A persons reservation wage is the lowest wage rate for which he or she is willing to supply labor. As the wage rate rises above the reservation wage, the household changes the quantity of labor supplied.Labor MarketsSubstitution EffectThe opportunity cost of lei

25、sure increases with the wage rate. The substitution effect describes how a person responds by increasing the quantity of labor supplied as the wage rate rises.Labor Markets e EffectAn increase in e enables the consumer to buy more of most goods. Leisure is a normal good, and the e effect describes h

26、ow a person responds to a higher wage rate by increasing the quantity of leisure and decreasing the quantity of labor supplied.Labor MarketsBackward-Bending Supply of Labor CurveAt low wage rates the substitution effect dominates the e effect, so a rise in the wage rate increases the quantity of lab

27、or supplied. At high wage rates the e effect dominates the substitution effect, so a rise in the wage rate decreases the quantity of labor supplied. The labor supply curve slopes upward at low wage rates but eventually bends backward at high wage rates.Market SupplyThe market supply curve is the sum

28、 all the individual supply of labor curves. Labor MarketsLabor MarketsChanges in the Supply of LaborThe factors that change the supply of labor and have increased it over time are1. Increases in adult population2. Technological change and capital accumulation in home productionLabor MarketsLabor Mar

29、ket EquilibriumWages and employment are determined by equilibrium in the labor market and have increased over the years.Trends in the Demand for LaborThe demand for labor has increased because of technological change and capital accumulation.Technological change and capital accumulation create more

30、jobs than they destroy and on the average, the new jobs pay more than the old ones did.Labor MarketsTrends in the Supply of LaborThe supply of labor has increased because of an increase in population and technological change as well as capital accumulation in the home.The supply of labor has increas

31、ed steadily, but at a slower pace than the demand for labor.Labor MarketsTrends in EquilibriumTechnological change and capital accumulation have increased the demand for labor by more than population growth and technological change in home production has increased the supply of labor.So the equilibr

32、ium wage rate and employment have increased.But the high-skilled computer-literate workers have benefited from the information revolution while some low-skill workers have lost out.Labor Market PowerIn some labor markets, workers organized by labor unions possess market power and are able to raise t

33、he wage rate above the competitive level. In some other labor markets, a large employer dominates the demand side of the market and can exert market power that lowers the wage rate below its competitive level.But an employer might also decide to pay more than the competitive wage rate to attract the

34、 best workers.Labor Market PowerLabor UnionsA labor union is an organized group of workers that aims to increase wages and influence other job conditions. There are two types of unions:A craft union is a group of workers who have a similar range of skills but work for many different industries and r

35、egions. The carpenters union is an example.An industrial union is a group of workers who have a variety of skills and job types but work for the same firm or industry. The United Auto Workers is an example.Labor Market PowerUnion organization in the United States peaked in market strength in the 195

36、0s when 35 percent of the non-agricultural workforce belonged to unions.Today that number has declined to 12 percent.Labor Market PowerUnions negotiate with employers in a process called collective bargaining.The union can call a strike where all union members are to refuse to work.The employer can

37、call a lockout where the firm refuses to operate its plant and allow its employees to work, depriving them of a paycheck.Binding arbitration is a process in which a third party determines wage rates and other employment conditions on behalf of the negotiating parties.Labor Market PowerUnions Objecti

38、ves and ConstraintsA union has three objectives. It seeks to1. Increase compensation2. Improve working conditions3. Expand job opportunities Labor Market PowerUnions are constrained in their pursuit of these goals by:The ability to restrict nonunion labor from replacing union labor, which depends up

39、on the fraction of work force controlled by the union.The ability to retain union jobs in the face of higher wages and benefits, which depends upon the elasticity of demand for the union labor.Labor Market PowerA Union Enters a Competitive Labor MarketUnions try to restrict the supply for union labo

40、r and raise the wage rate. But this action also decreases the quantity of labor demanded.So the union tries to increase the demand for labor.Labor Market PowerHow Unions Try to Change the Demand for LaborThe union tries to increase the demand for union labor, as well as make the demand for labor les

41、s elastic. Some of the methods used are Increase the marginal revenue product of members Encourage import restrictions Support minimum wage laws Support immigration restrictions Increase the demand for the good producedLabor Market PowerUnions try to increase the demand for union labor by:Increasing

42、 the marginal revenue product (MRP) of labor: Unions try to increase the marginal product of union labor, to make the firms demand for labor less elastic.Encouraging import restrictions: Unions seek government assistance to reduce availability of substitute goods and services that are produced by no

43、n-union labor.Supporting minimum wage laws: Unions seek to increase the cost of employing unskilled labor to replace higher skilled union labor.Labor Market PowerThe Scale of Union-Nonunion Wage DifferentialsEvidence suggests that after allowing for skill differences, the unionnonunion wage gap lies

44、 between 10 percent to 25 percent.For example, unionized airline pilots earn about 25 percent more than nonunion pilots with the same level of skill.Labor Market PowerMonopsony in the Labor marketA monopsony is a market with just one buyer.Decades ago, large manufacturing plants, steel mills and coa

45、l mines were often the sole buyer of labor in their local labor markets. Because a monopsony controls the labor market, it has the market power to set the market wage rate.Today, in some parts of the country, large managed health-care organizations are the major employer of health-care professionals

46、.Labor Market PowerLike all firms, the monopsony has a downward-sloping demand for labor curve.The supply curve of labor tells us the lowest wage rate of which a given quantity of labor is willing to work.Labor Market PowerBecause the monopsony controls the wage rate, the marginal cost of labor exce

47、eds the wage rate.The marginal cost of labor curve MCL is upward sloping.The relationship between the MCL curve and the S curve is similar to that between the marginal cost and average cost curves.Labor Market PowerThe monopsony maximizes profit by hiring the quantity of labor at which the marginal

48、cost of labor equals the marginal revenue product. The monopsony pays the lowest wage rate for which that quantity of labor will work.Labor Market PowerCompared to a competitive labor market, the monopsony employs fewer workers and pays a lower wage rate. Labor Market PowerA Union and a Monopsony So

49、metimes both the firm and the employees have market power when a monopsony encounters a labor union, a situation called a bilateral monopoly.Both the employer and the union must judge each others market power as come to an agreement on labor supplied and wages paid.Depending on the relative costs th

50、at each party can inflict on the other, the e of this situation may favor either the union or the firm.Labor Market PowerMonopsony and the Minimum WageThe imposition of a minimum wage might actually increase the quantity of labor hired by a monopsony. Figure 17.7 shows why.Labor Market PowerSuppose

51、that the minimum wage is set at $7.50 an hour.The minimum wage makes the supply of labor perfectly elastic over the range 0 to 75 hours.So over the range 0 to 75 hours, the marginal cost of hiring an additional employee equals the minimum wage. Labor Market PowerFor more than 75 hours, the supply of

52、 labor curve is S and the marginal cost of labor curve is MCL.As a result of the minimum wage, the monopsony increases the quantity of labor employed and pays a higher wage rate than if the minimum wage were not imposed.Labor Market PowerEfficiency Wages An efficiency wage is a wage rate that the fi

53、rm pays above the competitive equilibrium wage rate with the aim of attracting the most productive workers.In a perfectly competitive labor market, firms and workers are well informed.In some labor markets, the employer is not able to observe a workers marginal product. It is costly to monitor all t

54、he actions of every worker.Labor Market PowerIf all firm pay the competitive wage rate, some workers will choose to work hard and some will choose to shirk.If a firm pays an efficiency wage, the threat of being fired for shirking has some force. A fired worker can expect to find another job but only

55、 at the lower market equilibrium wage rate. So the worker now has an incentive not to shirk.A firm that pays an efficiency wage attracts more productive workers but at the cost of a higher wage bill.So the firm must decide just how much more than the competitive wage to pay.Capital MarketsCapital ma

56、rkets are the channels through which firms obtain financial resources to buy physical factors of production that economists call capital. The available financial resources come from savings. The real interest rate is the return on capital and is the “price” determined in the capital market.Capital M

57、arketsFigure 17.8 shows that the real interest rate fluctuatesbut it has shown no trend.Capital MarketsThe Demand for CapitalA firms demand for financial capital stems from its demand for physical capital and amount that a firm plans to borrow in a given time period is determined by its planned inve

58、stmentits planned purchases of new capital. The factors that determine investment and borrowing plans are the Marginal revenue product of capital Interest rateCapital MarketsMarginal Revenue Product of CapitalThe marginal revenue product of capital is the change in total revenue that results from em

59、ploying one more unit of capital. The marginal revenue product of capital diminishes as the quantity of capital increases. Capital MarketsInterest RateThe interest rate is the opportunity cost of the funds borrowed to finance investment. The interest rate is also the opportunity cost of a firm using

60、 its own funds because it could lend those funds to another firm and earn the going interest rate on the loan. The higher the interest rate, the smaller is the quantity of planned investment and borrowing in the capital market. Capital MarketsFirms demand the quantity of capital that makes the margi