Marginal Productivity Theory Of Labour Demand

Chapter 3 introduces the law of demand, the law of supply, and the equilibrium markets for goods and services. We’ve also learned under what conditions the demand and supply curve will shift and the inverse relationship of price and quantity will cause movement along the demand curve. The chapter also included illustrations and impact of price ceilings and price floors. While Chapter 4 demonstrates the same principles - law of demand and law of supply also applies to the labour and financial markets.

If each extra worker that is employed is adding to the companies output then the business will continue to grow. However as soon as a new employee does not add anything to the business then no more will be employed. This should not change if the wages rise, because as long as the employee is adding value to the business then they are worth employing, meaning that if a union does employ as many workers as it feels is enough to add value to the business then the price of labour should be irrelevant.

The direct labour usage variance is unfavourable for leather jackets indicating NLJ’s leather workers did not work as efficiently as budgeted. This was because the inexperienced workers hired could not work as efficiently as the experienced workers accounted for in the budget.

When the cost of labor is increased artificially by legislation instead of through market forces, companies will attempt to reduce their cost. When you pay someone more to work, the assumption is that they will have more disposable income and increased consumption will contribute to the economy as a whole. By increasing the cost of labor without an increase in productivity, market forces will cause a business to look for alternatives either through reduction in work force or by relocating jobs (offshoring). While those who are still employed will see an increase in pay, those lost their job will have no income and the government will lose the taxes associated with those jobs.

Similarly, when the marginal product of labor is more than the wage rate of each unit of labor, until then the firms and individuals will keep on hiring additional workers.

The lower employment occurs mainly because the increase in the cost of low-skilled labor, relative to the cost of using other productive inputs (such as machinery or more skilled workers), leads employers away from using low-skilled labor and toward these other inputs. This substitution effect is reinforced by the higher overall cost of production associated with the legislated increase in the wage for low-skilled workers, which in turn raises the price of the product and results in less output sold. (NA)

"Labor market" can be defined as the mechanism in which workers compete for jobs and employers compete for workers. In a labor market, wages, benefits and responsibilities of workers are bought and sold. Unlike traditional markets however, labor is not a good that can be differentiated by conventional rules of supply and demand. While workers are the suppliers and employers are the buyers, overall supply cannot be manufactured as people only have a limited amount of time in a day. Additionally, companies are strong and can often directly manipulate the market by setting strict labor rules, triggering potential reductions in any supply side

Chapter 1 (1.2 Question 4): How do business cycles and the health of the economy affect the value of your labor? In terms of supply and demand, what are the optimal conditions in which to sell your labor? How might further education increase your mobility in the labor market (the value of your labor)?

The introduction of minimum wage, or an increase in the minimum wage burdens the employer with increased costs, so the employer will seek to levy this burden onto the labor force to compensate for these additional costs. Veldhuis supports this by contending that minimum wage causes employers to “respond by reducing the number of workers they employ and/or the number of hours their employees work”. (1) This reaction is explained by theories of producer behavior. Economic theory states that firms are profit maximizers. Therefore, to maximize profits, the firm must minimize costs. A firm minimizes costs when the slope of the Marginal Rate of Technical Substitution is equal to the rate at which capital can be traded for labor in the market (-w/r). This is expressed by the equation = . As illustrated in

Through analysing the data presented by Penn Wharton at the University of Pennsylvania, one can find that the capital labour ratio has stayed on the projected trend from pre-1980. This shows a steady growth of the average worker’s productivity and wages, as stated in the article. From this we can say that, at even the

As the government attempts to limit their influence within the labour market, an additional strain is instead passed on to the employers. They are responsible pay staff on the current minimum wage an additional 50p an hour. These can have a number of serious knock on effects for the firms and the economy as a whole. This rise in wages will lead to higher operating costs for firms in various industries within the country. As

(Key Question) Complete the following labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market.

Because such practice would affect the country’s economy considerably. Initially, setting the minimum wage discourages productivity because wage is a product of productivity. Legislating a wage promote laxity because it creates a situation where remuneration fails to correspond with the employee’s effort. According to Mankiw (2012), an effective strategy of enhancing employees’ productivity is by ensuring that wages are increasing with productivity. This is essential because employees tend to increase their effort in order to earn more. Defining the minimum wage is also detrimental because the strategy provides only a temporary solution. Mankiw argues that introduction of money or stimulus into the economy provides a short-lived remedy, but

Accordingly, we will first "analyze" competitive markets, by discussing demand and supply separately. Then we will try to put them back together (synthesize them) in order to understand the working of competitive markets.

Capital can be given a charge of r (per unit bought) and labour can be