Week 5 Discussion 1
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There are moments in the market when consumers demand a high volume of a specific resource from an industry that it creates a demand for labor; this is referred to as derived demand. According to Amacher & Pate, “The demand for labor has three features that make it somewhat different from the demand for a product. The first is that the demand for labor is derived demand. A firm demands labor because the labor can be used to produce goods that consumers are demanding. The demand for labor is thus derived from the demand for the product the firm produces. If there were no consumer demand for products made from wood, there would be no demand for loggers. This principle holds for all productive resources. They are only valuable to a firm if they help produce products that consumers value.” (Amacher & Pate, 2019). This demand for labor is called derived demand because this labor is dependent on the high level of demand.
In the labor market, a firm’s labor demand curve shows the projected demand for workers at various salary levels. According to Amacher & Pate, “Remember that a demand curve shows the relationship between price and quantity demanded. A demand curve for labor shows how much labor will be demanded at various wage rates.” (Amacher & Pate, 2019). Firms have less incentive to hire more labor because of the rise in labor demand wages. Traditionally this curve is a downward sloping curve because
as a firm increases the number of employees, it decreases marginal productivity.
In the labor market, the workers’ supply curve represents workers' willingness to work additional labor hours. As a labor’s wages increase, the labor is willing to increase their quantity of work hours to obtain more income. According to Amacher & Pate, “An individual’s supply curve of labor looks like the other supply curves we have considered. As wage rates rise, the quantity of labor supplied increases. This supply curve of labor, like most supply curves, is upward sloping. As wage rates rise, an individual will want to work more hours. In general, as wages rise, more people will choose to give up leisure in favor of more income.” (Amacher & Pate, 2019). Traditionally, this curve is an upward sloping curve because as an employee receives increased wages, they are willing to trade away leisure to gain income from additional labor hours.
In a traditional labor market, a firm’s wage is normally determined by the demand of workers and the supply of those available workers. According to Amacher & Pate, “A profit-maximizing firm will employ additional labor until the cost of an additional unit is equal to the benefit, which is when the marginal product of labor is equal to the equilibrium wage.” (Amacher & Pate, 2019). Wages are essential for businesses of any size as they represent a high overhead cost. Therefore, wages can easily be influenced by the cost of living, minimum wage mandates, educational level, etc.
Amazon had several goals when deciding to increase its labor wage well over the $7.25 federal minimum
wage to $15 per hour. First, this increased wage would generate productivity from their employees. Secondly, this new rate would help retain and attract hard-working employees. Lower wages usually create positions with higher turnover rates. The Downside of Amazon raising their salaries is that it does add additional overhead cost, which is usually passed down to the consumers.
The positive effect of Amazon raising its minimum wage is that it should increase the level of productivity of its employees. This move also draws positive public opinion about the company and thus could increase sales and revenue. This move could also influence other large corporations to step up and
provide the same wage levels for their employees, thus providing more livable wages to the lower class.
The negative effect of Amazon raising its minimum wage is that the cost of increased wages is passed down to consumers and thus decreases sales and revenue. This move causing a chain reaction across other companies could cause the price of many different products, thus creating inflation. Although these employees are now earning more revenue, they are spending more money on everyday products.
Resources:
Amacher, R., & Pate, J. (2019). Principles of microeconomics
(2nd ed.). Bridgepoint Education.
Bernstein, J. (2018, October 7). Amazon's raise: Unequivocally good news
(Links to an external site.)Links
to an external site.
. The Journal Gazette
. http://www.journalgazette.net/opinion/columns/20181007/amazons-raise-unequivocally-good-news
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Related Questions
Listed are scenarios that may lead to changes in labor market conditions for chefs. Use your knowledge of labor demand and
supply curves to match each scenario to the appropriate category.
Will cause a shift in the
demand for labor
Will cause a shift in the
supply of labor
Will cause a shift in both
the demand for labor and
supply of labor
Will not result in a
curve shifting
A professional cooking tool is
invented that reduces the
number of chefs required to
produce many dishes.
The amount of training required
to work as a chef increases.
Wages for chefs increase.
Answer Bank
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Q8
In the Canadian labour market, demand for labour can be impacted by elasticity of the product in which labour is an input. Suppose that the labour cost to total cost ratio in industry A (cannabis sector) is 14 percent, while in industry B (fertilizer sector) it is 68 percent. Other things equal, labour demand will be
Multiple Choice
more elastic in industry B than in A.
constant in both industries A and B.
relatively elastic in both industries A and B.
relatively inelastic in both industries A and B.
more elastic in industry A than in B.
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Benny employs people to sell candy bars at intersections. Assume that Benny can
obtain candy bars to sell for no cost. The marginal product of the last worker Benny
hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the
candy bars for $1 each. If the price of candy bars rises to $2. then the:
demand for labor increases.
demand for labor decreases.
quantity demanded of labor increases, but the demand for labor curve does not shift.
quantity demanded of labor decreases, but the demand for labor curve does not shift.
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Consider the labour markets for skilled labour and unskilled labour.
The labour demand curve for skilled workers is given by w = e(150 - 5L)/100. The labour demand curve for unskilled workers is w = 50 - 2L. The labour supply for each of the two labour markets is given by L = 20.
The effort of firm's skilled workers depends on their wage according to the following schedule:
wage (w)
20
25
30
35
40
45
Effort (e)
16
24
30
34
36
36
a) Calculate the equilibrium employment, unemployment, and wage for unskilled workers.
b) Calculate the profit-maximizing contract (w,e).
c) Calculate the equilibrium employment, unemployment, and wage for skilled workers.
d) In a single labeled graph in (w - L), illustrate the labour market equilibria for skilled and unskilled workers.
e) Calculate the cumulative income distribution for each labour market by reporting the cumulative shares for the following percentiles: 50% and 100%.
f) In a single graph, construct the Lorenz curve representing labour…
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This figure below shows the labor market for automobile workers. The curve labeled S is the labor supply curve, and the curves labeled D1 and D2 are the labor demand
curves. On the horizontal axis, L represents the quantity of labor in the market.
D2
D1
Refer to Figure . Which of the following is a possible explanation of the shift of the labor-demand curve from D1 to D2?
Select one:
a.Large segments of the population changed their tastes regarding leisure versus work.
b.The wage earned by automobile workers increased.
c.The opportunity cost of leisure,
perceived by automobile workers, decreased.
d.The price of automobiles increased.
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Which of the following is not correct?
In a labor market, the wage adjusts to balance the supply and demand for labor.
A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor.
Any event that changes the supply or demand for labor must change the equilibrium wage.
Any event that changes the supply or demand for labor must change the value of the marginal product.
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Which of the following would increase the demand for labor?
There’s an increase in the number of workers
The price of the output good increases
The substitution effect makes leisure more expensive as wages increase
Leisure is a normal good and the income effect occurs when wages change
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Ian works at an iron smelter in Pittsburgh, the center of iron
production in America. Due to the difficulty in measuring the
productivity of individual employees, Ian's employer as well
as the other iron smelters all pay an efficiency wage.
Adjust the wage line on the graph to reflect this situation.
What characteristic of efficiency-wage jobs is not
supported by the situation shown in the graph?
Efficiency wage jobs result in a surplus of workers at
the wage being offered.
Elevated wages serve as an economic incentive to
work harder.
The wage rate will eventually return to the
market-clearing level.
Efficiency wages result in an increase in the rate
of unemployment.
Wage ($ per hour)
Quantity of workers (in thousands)
Wage
S
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Q5
Those working for Amazon have been trying to form a union. Suppose that these workers are successful in forming a union and call themselves the Amazon Delivery Workers. Assume the union successfully negotiated a 14 percent wage increase and the result was that the quantity of labour demanded decreased by 10 percent. Given a fixed labour demand curve, we can conclude that
Multiple Choice
labour demand is inelastic.
the coefficient of elasticity of labour demand is equal to 1.
labour demand is elastic.
the labour demand curve is upsloping.
economies of scale has been achieved.
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The following graph depicts the daily labour supply curve for Jake, a worker in the construction industry in Vancouver.
30
27
24
21
18
15
12
Labour Supply
3
+
+
+
1
2
3
4
5
7
10
LABOUR (Hours worked)
If the wage rate is $30 per hour, Jake will supply
hours of work per day.
additional
The wage rate must be S
per hour for Jake to supply 2 hours of work per day.
fewer
If the wage rate decreases from $30 per hour to $9 per hour, Jake will supply
hours of work per day.
WAGE (Dollars per hour)
co
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State whether each of the following events will result in a movement along the
market supply curve of agricultural labor in the United States or whether it will
cause the market supply curve of labor to shift. If the supply curve shifts, indicate
whether it will shift to the left or to the right in the provided graph.
A decline in the agricultural wage rate will result in a movement along the labor
supply curve.
An increase in wages outside of agriculture will result in a shift in
labor supply curve.
the
Use the line drawing tool (for a shift in supply) or the arrow drawing tool (for a
movement along the supply curve) to indicate the effect on the supply curve for
labor as a result of as a result of an increase in wages outside of agriculture by
drawing either a new labor supply curve or an arrow overlapping the original supply
curve indicating the direction of the movement in Graph A.
Carefully follow the instructions above, and only draw the required objects.
Wage
Graph A
S₁
Quantity…
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Which of the following is likely to shift the labor supply curve to the right, assuming all else equal?
A rise in the wage rate
A fall in the wage rate
A rise in the immigration of workers in search of better work opportunities
A fall in the population of a country due to a natural disaster
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In a competitive labor market, employers will not pay less than the market wage
because at a wage below the equilibrium
A) the equilibrium wage would rise
B) they would not be able to hire anyone
C) there would be a surplus of workers
D) they would be inundated with excess workers
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The demand for a factor of production (productive resource) is derived from the demand for the good
the factor produces
True
False
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One of these four answers could cause the demand curve for labor to shift to the right. Which one?
Group of answer choices
a decrease in the firm's product price
an increase in demand for the firm's product
a decrease in labor productivity
an increase in the wage rate
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Suppose the labor supply curve for native Washington DC residents is S DC (w) = 2w. There are many small firms in Washington DC. They collectively have a production function f (E) = 6E − E . 42
1. Write down the value of the marginal product of labor for the firms.
2. Find the equilibrium employment and the wage.
3. A group of workers moves from New York to Washington DC. These workers are perfect substitutes for Washington DC residents, and their labor supply curve is S NY (w) = 2 + αw where 0 < α < 1. Find the new total labor supply curve in Washington DC.
4. Find the new wage and Washington DC native employment.
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How do these depend on New York
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are profit maximizing. The following calculator shows the market demand curve (blue curve) and market supply curve (orange curve) for student
workers, who are responsible for making tacos.
At any time in this problem, you can click the Reset to Initial Values button to return the elements in the calculator to their original positions. You will
not be graded on any changes to the calculator; it's just here to help you answer the following questions.
Tool tip: You can directly change the values in the boxes with the white background by clicking in the box and typing. The graph and any related
values will change accordingly.
WAGE RATE
IX
0 10 20 30 40 50 60 70 80 90 100
QUANTITY OF LABOR (Thousands of workers)
14
Graph Input Tool
LABOR MARKET CALCULATOR
Wage rate
Labor demanded
(Thousands of
workers)
Price of a taco
(Dollars)
When the price…
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Supply: Thinking Like a Seller - End of Chapter Problem
Jerome is working as an IT consultant. His individual labor supply curve is given in the accompanying graph. Jerome decides to
enroll in college and will begin taking classes next semester.
Make the appropriate change to the graph to show the most likely effect on Jerome's labor supply curve of his decision to attend
college. If Jerome's decision to attend college results in a change in supply, shift the supply curve appropriately, but leave the
wage line unchanged. If Jerome's decision to attend college results in a change in quantity supplied, adjust the wage line
appropriately, but leave the supply curve unchanged.
Wage
Jerome's individual labor supply curve
Wage
Quantity
Supply
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True or false explain this
a) In a competitive labor market, the price of labor is determined by the industry that hires the labor.
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Which one of the following statements is incorrect?
a) Equilibrium in a perfectly competitive labour market occurs where the demand for labour is equal to the supply of labour.
b) Equilibrium in a perfectly competitive labour market occurs where the quantity of labour demanded is equal to the quantity of labour supplied.
c) Equilibrium in a perfectly competitive labour market is the result of the interaction between the demand for labour and the supply of labour.
d) The individual supply of labour bends backwards when the income effect becomes stronger than the substitution effect.
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Related Questions
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- Consider the labour markets for skilled labour and unskilled labour. The labour demand curve for skilled workers is given by w = e(150 - 5L)/100. The labour demand curve for unskilled workers is w = 50 - 2L. The labour supply for each of the two labour markets is given by L = 20. The effort of firm's skilled workers depends on their wage according to the following schedule: wage (w) 20 25 30 35 40 45 Effort (e) 16 24 30 34 36 36 a) Calculate the equilibrium employment, unemployment, and wage for unskilled workers. b) Calculate the profit-maximizing contract (w,e). c) Calculate the equilibrium employment, unemployment, and wage for skilled workers. d) In a single labeled graph in (w - L), illustrate the labour market equilibria for skilled and unskilled workers. e) Calculate the cumulative income distribution for each labour market by reporting the cumulative shares for the following percentiles: 50% and 100%. f) In a single graph, construct the Lorenz curve representing labour…arrow_forwardThis figure below shows the labor market for automobile workers. The curve labeled S is the labor supply curve, and the curves labeled D1 and D2 are the labor demand curves. On the horizontal axis, L represents the quantity of labor in the market. D2 D1 Refer to Figure . Which of the following is a possible explanation of the shift of the labor-demand curve from D1 to D2? Select one: a.Large segments of the population changed their tastes regarding leisure versus work. b.The wage earned by automobile workers increased. c.The opportunity cost of leisure, perceived by automobile workers, decreased. d.The price of automobiles increased.arrow_forwardWhich of the following is not correct? In a labor market, the wage adjusts to balance the supply and demand for labor. A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor. Any event that changes the supply or demand for labor must change the equilibrium wage. Any event that changes the supply or demand for labor must change the value of the marginal product.arrow_forward
- Which of the following would increase the demand for labor? There’s an increase in the number of workers The price of the output good increases The substitution effect makes leisure more expensive as wages increase Leisure is a normal good and the income effect occurs when wages changearrow_forwardIan works at an iron smelter in Pittsburgh, the center of iron production in America. Due to the difficulty in measuring the productivity of individual employees, Ian's employer as well as the other iron smelters all pay an efficiency wage. Adjust the wage line on the graph to reflect this situation. What characteristic of efficiency-wage jobs is not supported by the situation shown in the graph? Efficiency wage jobs result in a surplus of workers at the wage being offered. Elevated wages serve as an economic incentive to work harder. The wage rate will eventually return to the market-clearing level. Efficiency wages result in an increase in the rate of unemployment. Wage ($ per hour) Quantity of workers (in thousands) Wage Sarrow_forwardQ5 Those working for Amazon have been trying to form a union. Suppose that these workers are successful in forming a union and call themselves the Amazon Delivery Workers. Assume the union successfully negotiated a 14 percent wage increase and the result was that the quantity of labour demanded decreased by 10 percent. Given a fixed labour demand curve, we can conclude that Multiple Choice labour demand is inelastic. the coefficient of elasticity of labour demand is equal to 1. labour demand is elastic. the labour demand curve is upsloping. economies of scale has been achieved.arrow_forward
- The following graph depicts the daily labour supply curve for Jake, a worker in the construction industry in Vancouver. 30 27 24 21 18 15 12 Labour Supply 3 + + + 1 2 3 4 5 7 10 LABOUR (Hours worked) If the wage rate is $30 per hour, Jake will supply hours of work per day. additional The wage rate must be S per hour for Jake to supply 2 hours of work per day. fewer If the wage rate decreases from $30 per hour to $9 per hour, Jake will supply hours of work per day. WAGE (Dollars per hour) coarrow_forwardState whether each of the following events will result in a movement along the market supply curve of agricultural labor in the United States or whether it will cause the market supply curve of labor to shift. If the supply curve shifts, indicate whether it will shift to the left or to the right in the provided graph. A decline in the agricultural wage rate will result in a movement along the labor supply curve. An increase in wages outside of agriculture will result in a shift in labor supply curve. the Use the line drawing tool (for a shift in supply) or the arrow drawing tool (for a movement along the supply curve) to indicate the effect on the supply curve for labor as a result of as a result of an increase in wages outside of agriculture by drawing either a new labor supply curve or an arrow overlapping the original supply curve indicating the direction of the movement in Graph A. Carefully follow the instructions above, and only draw the required objects. Wage Graph A S₁ Quantity…arrow_forwardWhich of the following is likely to shift the labor supply curve to the right, assuming all else equal? A rise in the wage rate A fall in the wage rate A rise in the immigration of workers in search of better work opportunities A fall in the population of a country due to a natural disasterarrow_forward
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