micro 2 - chapter 6

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7/21/2019 Micro 2 - Chapter 6 http://slidepdf.com/reader/full/micro-2-chapter-6 1/7 1 CHAPTER 6 LABOUR MARKET CONTENT Labour supply Labour demand Equilibrium in labour market

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Page 1: Micro 2 - Chapter 6

7/21/2019 Micro 2 - Chapter 6

http://slidepdf.com/reader/full/micro-2-chapter-6 1/7

1

CHAPTER 6

LABOUR MARKET

CONTENT

Labour supply

Labour demand

Equilibrium in labour market

Page 2: Micro 2 - Chapter 6

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I. LABOUR SUPPLY 

1. Definition

- The number of working hours that worker is willing to workand able to work at various wage levels in a certain time,ceteris paribus

- Diagram:

w

l, t

SL

I. LABOUR SUPPLY 

2. Determinants in labour supply function

- Wages

- Economic pressure

- Social pressure

- Time restrain/limitation

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I. LABOUR SUPPLY 

MU restMU working

t*24-t*

II. LABOUR DEMAND

1. Definition

- The number of working hours that employer is willing to hire

and afford to hire at various wage levels in a certain time,ceteris paribus

Derived demand

Diagram:

W

t,l

DL

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II. LABOUR DEMAND

2. Determinants in labour demand function

- Wages

- Quality of employee

- Demand of goods and services

II. LABOUR DEMAND

3. Marginal revenue product of labour (MRPL)

- The change in total revenue results from the change innumber of employee

-   → MRPL is a downward sloping curve

 L L  MPP MR L

Q

Q

TR MRP   ..   =

∆=

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II. LABOUR DEMAND

4. Optimal employment

MRPL > w: Expandingemployment

MRPL < w: Restrainingemployment

MRPL = w: Optimalemployment

→ MRPL is the labour demandcurve

w

t,l

MRPL

w*w

III. EQUILIBRIUM IN LABOUR MARKET

1. Equilibrium in a perfect competition marketw

t,l

w

t,l

w*

MRPLDL

SL

w*

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III. EQUILIBRIUM IN LABOUR MARKET

2. Equilibrium in monopsony market - A market, where there is

only one buyer/ employer

- Some definitions:

+ Total Inputs Cost (TICL): Total

cost paid for labour

TICL = w.L

+ Marginal Inputs Cost (MICL):The change in total cost resultsfrom the change in number of

hired labour

=∆

∆=

 L

TIC  MIC    L

 L

w

t,l

DL=MRPL

SL

MICL

l*1

w*1

III. EQUILIBRIUM IN LABOUR MARKET

2. Equilibrium in monopoly market 

- A market where there isonly one supplier/employee

MRL

DL=MRPL

MC

l*2

W*2

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III. EQUILIBRIUM IN LABOUR MARKET

4. Duopoly - A market where there

are only one supplier

and one buyer

MRLDL=MRPL

SL=MC

MICL

l*1l*2

W*1

W*2

w*3