Customer Service Chat
Get quote & make Payment
classical labour market, Macroeconomics
A rise in the real wage will bring a decrease in the quantity demanded of labor because of diminishing returns in production. As more and more labor is employed, it is increasingly less productive. Firms will seek to maximize profits, which means that they will continue to employ labor as long the marginal product exceeds the real wage paid. The last hour of labor hired will be that hour where the marginal product is equal to the real wage. If the real wage increases, the firm will then find that the marginal product of the last labor hour is less than the real wage. This decreases profits, so the firm will reduce the amount of labor it employs unless once again the marginal product of the last hour of labor employed is equal to the real wage.
5. An increase in the real wage will increase the quantity of labor supplied for two reasons: the hours supplied per person will increase; and the labor force participation rate will increase. When the real wage increases the opportunity cost of leisure, which means that households will be willing to supply more labor. This will increase the households'' incomes, which will increase the households'' demand for all normal goods, including leisure. However, this income effect is assumed to be smaller than the opportunity cost effect, so the hours per person will increase. When the real wage increases, the relative value of other productive activities decreases. This means that more people who had previously chosen not to be part of the labor force because the real wage was less than the value of other productive activities are now more likely to find the real wage higher than alternatives and will chose to enter the labor force.
6. If the real wage is above or below the full-employment level there will be a surplus or shortage of labor that will then cause the real wage to adjust. For example, if the real wage is above the full-employment level, there is a surplus of labor. This will cause the real wage to fall. If the real wage is below the full-employment level, then (in the long run) there is a shortage of labor and this will cause the real wage to rise. In either case, the real wage will adjust until the surplus or shortage is eliminated and the labor market is in equilibrium at full-employment.
7. Potential GDP is determined from the labor market equilibrium. When the labor market is in equilibrium, there is full employment. This is the amount of employment which in turn determines the amount of potential GDP.
Posted Date: 10/10/2012 4:38:13 AM | Location : United States
Ask an Expert
classical labour market, Assignment Help, Ask Question on classical labour market, Get Answer, Expert's Help, classical labour market Discussions
Write discussion on classical labour market
Your posts are moderated
Write your message here..
Inflation, discuss the action the procurement function should take to achie...
discuss the action the procurement function should take to achieve raw materials at economic cost durin inflation
Happens with the budget constraint, Suppose that Ana is buying only 2 goods...
Suppose that Ana is buying only 2 goods: good 1 and 2. If the price of good 1 doubles and the price of good 2 drops by one third, then what happens with the budget constraint? (Ass
Theory of aggregate demand, unplandned change in inventory are coutned as i...
unplandned change in inventory are coutned as investment spending by firms
Demand analysis, how the demand of pizzas in pizza hut affecting the market...
how the demand of pizzas in pizza hut affecting the market of fast food
Maintaining the building of explicit cost, An owner can lease her building ...
An owner can lease her building for $100,000 per year for the next three years. The explicit cost of maintaining the building is $35,000, and the implicit cost is $50,000. All reve
Public sector, Are there any current subsidy or welfare issues that are bei...
Are there any current subsidy or welfare issues that are being discussed or addressed in parliament or in municipalities
Analyse the effects of oil price, As previously stated, the aim of the pape...
As previously stated, the aim of the paper is to observe and analyse the effects of oil price shocks on key macroeconomic indicators in the UK economy. From this the aim is to conc
Calculate weights of a and b in the global minimum variance , Consider two ...
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of
What is trade liberalisation, What is Trade liberalisation Trade liber...
What is Trade liberalisation Trade liberalisation is the removal of barriers to trade. This has mainly taken the form of restrictions created by national governments like quot
Marginal product of labor and capital, We define marginal product of labor,...
We define marginal product of labor, MP L as the derivative of f with respect to the L - which is, as (approximately) how much Y will increase when L increases by one unit. We als
Accounting Assignment Help
Economics Assignment Help
Finance Assignment Help
Statistics Assignment Help
Physics Assignment Help
Chemistry Assignment Help
Math Assignment Help
Biology Assignment Help
English Assignment Help
Management Assignment Help
Engineering Assignment Help
Programming Assignment Help
Computer Science Assignment Help
Why Us ?
~24x7 hrs Support
~Quality of Work
~Time on Delivery
~Privacy of Work
Human Resource Management
Literature Review Writing Help
Follow Us |
T & C
Copyright by ExpertsMind IT Educational Pvt. Ltd.