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Input Factor of Production Markets

Introduction. Factor MarketsFactors of Production: Land, Labour, Capital, EntrepreneurshipFocus on Labour Review (to some extent). Derived Demand. The demand for a factor (say, labour) is a derived demand for the product that the factor produces.. Individual Supply of Labour (Review). Recall th

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Input Factor of Production Markets

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    1. Input (Factor of Production) Markets

    2. Introduction Factor Markets Factors of Production: Land, Labour, Capital, Entrepreneurship Focus on Labour Review (to some extent)

    3. Derived Demand The demand for a factor (say, labour) is a derived demand for the product that the factor produces.

    4. Individual Supply of Labour (Review) Recall the income and substitution effects of a wage increase (I.e. labour-leisure trade-off) Substitution Effect: w ? ? Price of Leisure ? ? Demand for leisure ? ? Supply of Labour ? Income Effect: w ? ? Real Income ? ? Demand for leisure ? (?) if leisure normal (inferior) ? Supply of Labour ? (?)

    5. Market Supply of Labour (Review)

    6. Labour Demand (Review)

    7. Labour Demand (Review)

    8. Labour Demand (Review)

    9. Labour Demand (Review)

    10. Labour Demand (Review)

    11. Labour Demand (Review)

    12. Labour Demand

    13. Labour Demand: Agenda Profit maximising labour demand curves – what determines the basic shape? Restrictions: Product and factor markets are assumed to be perfectly competitive.

    14. Labour Demand: Agenda Short Run (capital fixed) Firm’s demand curve for labour? Market demand curve for labour? Long Run (capital variable) Firm’s demand curve for labour? Market demand curve for labour?

    15. Short Run: Firm’s Demand for Labour Capital is fixed, Labour is variable. As labour is increased the extra output resulting from the additional unit of labour declines, i.e. MPL declines. The additional revenue from employing an extra unti of labour is referred to as the Value of the Marginal Product (VMPL) = P.MPL.

    16. Short Run: Firm’s Demand for Labour

    17. Short Run: Firm’s Demand for Labour

    18. Short Run: Firm’s Demand for Labour

    19. Short Run: Firm’s Demand for Labour

    20. Short Run: Market Demand for Labour As wage ? Ld ? for each firm Output ? Price (P) ? VMPL shifts inwards Market demand for labour curve is less elastic than the firm demand for labour curve Draw this yourself

    21. Long Run: Firm’s Demand for Labour As wage ? L? and usually K ? If K ? then MPL ? L? again (i.e. an extra “kick”) The long run demand for labour curve is more elastic than the short run demand for labour curve Draw this yourself

    22. Long Run: Market Demand for Labour As wage ? Ld ? for each firm Output ? Price (P) ? VMPL shifts inwards Long run market demand for labour curve is less elastic than the short run market demand for labour curve Draw this yourself

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