Review Notes - Resource Markets


- applies to all resources not just labor although we use labor for an example.

- Why do individuals supply labor?
- what affects an individual's supply of labor?
- how do we get market labor supply?
- why is individual labor supply backward bending? (income and substitution effects.)
- why is market labor supply upward sloping?
- what affects labor supply besides wages?

- Why do firms demand labor?
- DL is derived for demand for the output.
- DL is given by MRPL. Why is MRPL firm demand for labor?
- Definitions - especially the difference between MRP and VMP but also MFC, wage, Leisure, Labor, monopsony, etc.
- What affects a firm's demand for labor besides wages? (Focus on the output price and labor's productivity.)
- what affects the elasticity of labor demand?

- Four different market scenarios. For each scenario (on the graph) how do you find L, w, exploitation, etc.

Labor Market Perfectly Competitive
Output Market Perfectly Competitive

Labor Market Perfectly Competitive
Output Market Monopoly

Labor Market Monopsony
Output Market Perfectly Competitive

Labor Market Monopsony
Output Market Monopoly

 
- all profit maximizing firms hire labor where MRPL equals MFC.
- for some, though, MRPL = VMP (which ones?)
- for some, though, MFC = SL = market wage (which ones?)

- Efficiency and Exploitation.
- What impact does price and wage discrimination have on the inefficiency of monopolies and monopsonies respectively?
- Allocatively efficient where VMPL = SL (wage rate). Conditions under which allocative efficiency exists?
- Definition of exploitation. (VMPL > wage) Conditions under which allocative efficiency exists?

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