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Microeconomics and Behaviour
Microeconomics and Behaviour
Robert H. Frank, Cornell University
Ian C. Parker, University of Toronto
Labour

Chapter Outline

  1. The perfectly competitive firm's short-run demand for labour will be the value of the marginal product of labour curve.
    1. The value of the marginal product is the marginal product times the price of the output produced.
    2. In the long run the labour demand will be more elastic than in the short run.
  2. The market demand for labour will be less elastic than the firm's demand because product price falls when all firms produce more.
  3. An imperfect competitor's demand for labour is equal to the marginal revenue product curve, which shows the extra revenue generated for the firm by the last worker.
  4. The individual supply of labour is derived by observing a worker’s tradeoff between leisure and income.
    1. Some workers work less when income rises because the income effect outweighs the substitution effect from higher wages.
    2. The ability to select the amount of hours worked varies with the job.
    3. The market supply curve is derived by horizontally adding together the individual demand curves.
    4. The amount of labour offered for high-risk jobs will involve a tradeoff between income and safety as well as income and leisure.
  5. Monopsony is present whenever a labour market has only one employer.
    1. The marginal factor cost curve shows the change in total wage bill when one more worker is hired. Every other worker must be paid more when an additional worker is hired.
    2. A profit-maximizing monopsonist equates marginal factor cost with either the value of the marginal product or the marginal revenue product to determine the amount of labour to employ.
  6. Labour markets have many imperfections that prevent the efficient allocation of labour.
    1. Discrimination by customers, other workers, or employers may affect wages.
    2. Labour unions monopolize the supply of labour in order to maximize worker objectives.
    3. Minimum wage laws reduce the number of jobs available, except in the case of monopsony.
  7. Statistical discrimination in the labour market occurs when decisions are made based on average labour productivity rather than individual labour productivity because of the difficulty of obtaining detailed individual observations.
  8. Because the consumer frequently prefers the best or nothing, superstars are able to receive much higher pay than the second-best performers.




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