![Page 1: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/1.jpg)
How are wages determined in competitive labor markets
The factor market questions on the AP test will place the heaviest emphasis on labor
markets because labor accounts for almost 70% of payments to factors of production
![Page 2: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/2.jpg)
1. What two factors affect the demand for labor?
![Page 3: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/3.jpg)
1. What two factors affect the demand for labor?
• Product Price produced by labor– Derived demand from the product market
demand for the good– Think Marginal Revenue
• Productivity of labor– Marginal Product
![Page 4: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/4.jpg)
2. How does marginal revenue product affect the demand for
labor?
![Page 5: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/5.jpg)
2. How does marginal revenue product affect the demand for
labor?• A firm hires labor until the wage equals the marginal
revenue product – (mrc = mrp)
• A single firm can’t control the wage, because it is only one among many firms, in the competitive labor market – Just as it can’t control price in the product market
• MRP is the demand curve for labor– Times the # of firms in the market
• A firm will hire workers as long as the worker contributes more to total revenue than total costs
![Page 6: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/6.jpg)
3. Why is the demand curve for labor downward sloping?
![Page 7: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/7.jpg)
3. Why is the demand curve for labor downward sloping?
• Because at a moment in time, all things being equal (ceteris Paribas), the marginal revenue of a product is constant, and
• Because MRP = MR * MP, and• Because the MRP curve for a firm is the
demand curve for labor for the firm• Ergo- Only the law of diminishing
marginal returns explains why the labor curve is downward sloping
![Page 8: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/8.jpg)
4. What determines the market supply of labor?
![Page 9: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/9.jpg)
4. What determines the market supply of labor?
• The number of people willing and able to work at various wages– The opportunity cost of not working
• Leisure• Home with the kids• Education (human capital formation)
![Page 10: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/10.jpg)
5. Why is the market supply curve for labor upward sloping?
![Page 11: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/11.jpg)
5. Why is the market supply curve for labor upward sloping?
• More people are willing or able to work if they are paid more– The opportunity cost of not working has risen– They may have been able but unwilling– They may have been willing but unable
![Page 12: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/12.jpg)
• 6. What is the equilibrium wage in this labor market?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 13: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/13.jpg)
• 6. What is the equilibrium wage in this labor market? $3.00
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 14: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/14.jpg)
• 7. How many workers will be hired in this labor market?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 15: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/15.jpg)
• 7. How many workers will be hired in this labor market? 500 workers
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 16: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/16.jpg)
• 8. If a minimum-wage law raises the minimum wage to $4.00 an hour, what quantity of labor will be supplied?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 17: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/17.jpg)
• 8. If a minimum-wage law raises the minimum wage to $4.00 an hour, what quantity of labor will be supplied? 800 workers
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 18: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/18.jpg)
• 9. At a minimum wage of $4.00 an hour, what quantity of labor will be demanded?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 19: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/19.jpg)
• 9. At a minimum wage of $4.00 an hour, what quantity of labor will be demanded? 300 workers
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 20: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/20.jpg)
• 10. How many workers would be laid off or lose their jobs because of the $4.00 minimum wage?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 21: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/21.jpg)
• 10. How many workers would be laid off or lose their jobs because of the $4.00 minimum wage? 200 workers
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 22: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/22.jpg)
• 11. How many more workers are seeking a job because of this minimum wage?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 23: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/23.jpg)
• 11. How many more workers are seeking a job because of this minimum wage? 300 workers
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 24: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/24.jpg)
• 12. If demand for labor were more inelastic, would more or fewer workers lose their jobs because of the $4.00 minimum wage?
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 25: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/25.jpg)
• 12. If demand for labor were more inelastic, would more or fewer workers lose their jobs because of the $4.00 minimum wage? fewer
Quantity of Labor
Wag
e R
ates
100
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
.50
700 800 900 1,000300200 400 600500
D
S
A Market for Labor
![Page 26: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/26.jpg)
13. Would skilled or unskilled workers be more likely to lose their jobs because of a minimum-wage
law?
![Page 27: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/27.jpg)
13. Would skilled or unskilled workers be more likely to lose their jobs because of a minimum-wage
law?
• unskilled
![Page 28: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/28.jpg)
14. Who benefits from the minimum wage?
![Page 29: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/29.jpg)
14. Who benefits from the minimum wage?
• Skilled workers and the unskilled workers who have not been laid off
![Page 30: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/30.jpg)
15. Who is hurt by the minimum wage?
![Page 31: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/31.jpg)
15. Who is hurt by the minimum wage?
• Unskilled workers who lose their jobs– Those with the least skills – The youngest workers– Those susceptible to discrimination by
employers• Ethnic Minorities• The disabled• Older higher paid workers
![Page 32: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/32.jpg)
16. Do you favor a higher minimum wage? Why or why not?
![Page 33: How are wages determined in competitive labor markets The factor market questions on the AP test will place the heaviest emphasis on labor markets because](https://reader036.vdocuments.us/reader036/viewer/2022062407/56649da65503460f94a920ad/html5/thumbnails/33.jpg)
16. Do you favor a higher minimum wage? Why or why not?
This is why my tech kids like micro rather than macro; there’s fewer of
these social policy decisions! lol• Yes • No