Lecture 13. Factor Market 范里安版《中级微观经济学》ppt.pptVIP

* * * * * * If w falls, there will be two effects: Substitution Effect: If the output level is held constant, there will be a tendency to substitute L for K in the productive process. Output Effect: As relative factor costs are changed, firm’s expansion path shifts. Consequently, all the firm’s cost curves will be shifted, and the output level will also change. Comparative Statics * Comparative Statics The isoquant map The output decision K L p y A B C MC MC’ q q’ q q’ If w falls The firm will substitute L for K MC curve will shift downward. Output level will rise. Even more L will be demanded * In normal cases, is negative: Both substitution and output effects cause more labor to be hired when the wage rate falls. Product demand is more elastic in the long run than in the short run. The sign of is indeterminate: If interest rate falls, the substitution effect will cause less labor to be hired, but the output effect will cause more labor to be demanded. Comparative Statics * Equilibrium of Competitive Labor Market w Market supply curves are usually positively sloped over normal wage ranges. The wage measures the opportunity cost of using the marginal labor hour in the employment. * L Determinants of Labor Supply Nonwage income Preferences for work versus leisure Wage rates in other occupations Nonwage aspects of job Determinants of Labor Demand Product demand Productivity Prices of other factors Determinants of Equilibrium * People always believe that jobs requiring great talents and abilities are always rewarded with high incomes. That is not the trues. For example, high-quality acting and dancing require great skill, but most actors and dancers earn relatively low incomes. Why? The demand for labor is a derived demand. Determinants of Equilibrium EXAMPLES Talents Must be Richer? * Workers may be heterogeneous: they may have different productivities. Firms hire workers based on their marginal productivities, so workers with greater marginal prod