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Chapter 19: Labour Markets (Key terms (Factors of production: the inputs…
Chapter 19: Labour Markets
Key terms
Factors of production: the inputs used to produce goods and services
Production function: relationship between the quantity of the inputs used in production and the quantity of outputs from the production
Marginal product of labor (MPL): the increase in the amount of output from an additional unit of labor
Value of the marginal product = Marginal product of an input times the price of the output ( = MPL x P )
Marginal profit = value of the marginal product of labor - wage
The minimum value of the marginal product = wage
Marginal cost (MC) = Price of output = Wage/ MPL
Value of marginal product = wage = MPL x P
What causes the labor demand curve to shift?
The output price ( the higher the output price, the more labor demand and vice versa)
Technological change (technology might replace workers)
The supply of others factors (i.e: apple pickers need ladders, so if the number of ladders decrease, the demand for workers will also decrease)
What causes the labor supply curve to shift?
Changes in tastes (in the past, women are likely to stay at home, however, in recent day, women are more likely to go to work)
Changes in alternative opportunities (the other industries might attract workers)
Immigration (Increase population)
Changing demographics
Additional Information
At low level of employment, the value of the marginal product exceeds the wage, increasing the total profit
At high level of employment, the value of the marginal product less than the wage, reducing the total profit