Explanation of Solution
Producer surplus in a labor market is an advantage taken by the producer due to the variations in the value of marginal product of the labor and the value of total product. Producer surplus is represented by the area above the competitive wage and below the demand curve, whereas worker surplus refers to the difference between the competitive wage that is earned by the worker and the
Figure 1 shows equilibrium in a competitive labor market. In this figure, employment is measured on the horizontal axis and the wage rate in dollars is measured on the vertical axis. The triangle P, which is above the wage rate and under the demand curve, gives the producer surplus and the triangle Q, which is above the supply curve and under the wage rate gives the worker surplus.
Producer surplus: Producer surplus in a labor market is an advantage taken by the producer due to the variations in the value of marginal product of the labor and the value of total product.
Worker surplus: Worker surplus refers to the difference between the competitive wage that is earned by the worker and the opportunity cost of workers’ time.
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Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
