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1、,Chapter 14,Markets for Factor Inputs,Chapter 14,Slide 2,Topics to be Discussed,Competitive Factor Markets Equilibrium in a Competitive Factor Market Factor Markets with Monopsony Power Factor Markets with Monopoly Power,Chapter 14,Slide 3,Competitive Factor Markets,Characteristics 1) Large number o
2、f sellers of the factor of production 2) Large number of buyers of the factor of production 3) The buyers and sellers of the factor of production are price takers,Chapter 14,Slide 4,Competitive Factor Markets,Demand for a Factor Input When Only One Input Is Variable Demand for factor inputs is a der
3、ived demand derived from factor cost and output demand,Chapter 14,Slide 5,Competitive Factor Markets,Assume Two inputs: Capital (K) and Labor (L) Cost of K is r and the cost of labor is w K is fixed and L is variable,Demand for a Factor Input When Only One Input Is Variable,Chapter 14,Slide 6,Compet
4、itive Factor Markets,Problem How much labor to hire,Demand for a Factor Input When Only One Input Is Variable,Chapter 14,Slide 7,Competitive Factor Markets,Measuring the Value of a Workers Output Marginal Revenue Product of Labor (MRPL) MRPL = (MPL)(MR),Demand for a Factor Input When Only One Input
5、Is Variable,Chapter 14,Slide 8,Competitive Factor Markets,Assume perfect competition in the product market Then MR = P,Demand for a Factor Input When Only One Input Is Variable,Chapter 14,Slide 9,Competitive Factor Markets,Question What will happen to the value of MRPL when more workers are hired?,D
6、emand for a Factor Input When Only One Input Is Variable,Chapter 14,Slide 10,Marginal Revenue Product,Hours of Work,Wages ($ per hour),Chapter 14,Slide 11,Competitive Factor Markets,Choosing the profit-maximizing amount of labor If MRPL w (the marginal cost of hiring a worker): hire the worker If MR
7、PL w: hire less labor If MRPL = w: profit maximizing amount of labor,Demand for a Factor Input When Only One Input Is Variable,Chapter 14,Slide 12,Hiring by a Firm in the Labor Market (with Capital Fixed),Quantity of Labor,Price of Labor,Why not hire fewer or more workers than L*.,Chapter 14,Slide 1
8、3,Competitive Factor Markets,If the market supply of labor increased relative to demand (baby boomers or female entry), a surplus of labor would exist and the wage rate would fall. Question How would this impact the quantity demanded for labor?,Demand for a Factor Input When Only One Input Is Variab
9、le,Chapter 14,Slide 14,A Shift in the Supply of Labor,Quantity of Labor,Price of Labor,Chapter 14,Slide 15,Competitive Factor Markets,Comparing Input and Output Markets,Chapter 14,Slide 16,Competitive Factor Markets,Comparing Input and Output Markets In both markets, input and output choices occur w
10、here MR = MC MR from the sale of the output MC from the purchase of the input,Chapter 14,Slide 17,Competitive Factor Markets,Scenario Producing farm equipment with two variable inputs: Labor Assembly-line machinery Assume the wage rate falls,Demand for a Factor Input When Several Inputs Are Variable
11、,Chapter 14,Slide 18,Competitive Factor Markets,Question How will the decrease in the wage rate impact the demand for labor?,Demand for a Factor Input When Several Inputs Are Variable,Chapter 14,Slide 19,Firms Demand Curve for Labor (with Variable Capital),Hours of Work,Wages ($ per hour),0,5,10,15,
12、20,40,80,120,160,Chapter 14,Slide 20,Assume that all firms respond to a lower wage All firms would hire more workers. Market supply would increase. The market price will fall. The quantity demanded for labor by the firm will be smaller.,Competitive Factor Markets,Industry Demand for Labor,The Indust
13、ry Demand for Labor,Labor (worker-hours),Labor (worker-hours),Wage ($ per hour),Wage ($ per hour),0,5,10,15,0,5,10,15,50,100,150,L0,Firm,Industry,Chapter 14,Slide 22,The Industry Demand for Labor,Question How would a change to a non-competitive market impact the derivation of the market demand for l
14、abor?,Chapter 14,Slide 23,The Demand for Jet Fuel,Observations Jet fuel is a factor (input) cost Cost of jet fuel 1971-Jet fuel cost equaled 12.4% of total operating cost 1980-Jet fuel cost equaled 30.0% of total operating cost 1990s-Jet fuel cost equaled 15.0% of total operating cost,Chapter 14,Sli
15、de 24,The Demand for Jet Fuel,Observations Airlines responded to higher prices in the 1970s by reducing the quantity of jet fuel used Ton-miles increased by 29.6% & jet fuel consumed rose by 8.8%,Chapter 14,Slide 25,The Demand for Jet Fuel,Observations The demand for jet fuel impacts the airlines an
16、d refineries alike The short-run price elasticity of demand for jet-fuel is very inelastic,Chapter 14,Slide 26,Short-run Price Elasticity of Demand for Jet Fuel,American -.06 Delta -.15 Continental -.09 TWA -.10 Northwest -.07 United -.10,Airline Elasticity Airline Elasticity,Chapter 14,Slide 27,The
17、 Demand for Jet Fuel,Question How would the long-run price elasticity of demand compare to the short-run?,Chapter 14,Slide 28,The Short- and Long-Run Demand for Jet Fuel,Quantity of Jet Fuel,Price,Chapter 14,Slide 29,Competitive Factor Markets,The Supply of Inputs to a Firm Determining how much of a
18、n input to purchase Assume a perfectly competitive factor market,A Firms Input Supply in a Competitive Factor Market,Yards of Fabric (thousands),Yards of Fabric (thousands),Price ($ per yard),Price ($ per yard),Chapter 14,Slide 31,Competitive Factor Markets,The Market Supply of Inputs The market sup
19、ply for physical inputs is upward sloping Examples: jet fuel, fabric, steel The market supply for labor may be upward sloping and backward bending,Chapter 14,Slide 32,Competitive Factor Markets,The Supply of Labor The choice to supply labor is based on utility maximization Leisure competes with labo
20、r for utility Wage rate measures the price of leisure Higher wage rate causes the price of leisure to increase,Chapter 14,Slide 33,Competitive Factor Markets,The Supply of Labor Higher wages encourage workers to substitute work for leisure (i.e. the substitution effect) Higher wages allow the worker
21、 to purchase more goods, including leisure which reduces work hours (i.e. the income effect),Chapter 14,Slide 34,Competitive Factor Markets,The Supply of Labor If the income effect exceeds the substitution effect the supply curve is backward bending,Chapter 14,Slide 35,Backward-Bending Supply of Lab
22、or,Hours of Work per Day,Wage ($ per hour),Substitution and Income Effects of a Wage Increase,Hours of Leisure,Income ($ per day),0,240,8,24,Chapter 14,Slide 37,Labor Supply for One- and Two-Earner Households,Female Percent of Labor Force 1950 - 29% 1999 - 60%,Elasticities of Labor Supply (Hours Wor
23、ked),Heads Hours Spouses Hours Heads Hours with Respect to with Respect to with Respect to Group Heads Wage Spouses Wage Spouses Wage,Unmarried males .026 (no children) Unmarried females .106 (with children) Unmarried females .011 (no children) One-earner family -.078 (with children) One-earner fami
24、ly .007 (no children) Two-earner family -.002 -.086 -.004 (with children) Two-earner family -.107 -.028 -.059 (no children),Chapter 14,Slide 39,Equilibrium in a Competitive Factor Market,A competitive factor market is in equilibrium when the price of the input equates the quantity demanded to the qu
25、antity supplied.,Labor Market Equilibrium,Number of Workers,Number of Workers,Wage,Wage,Competitive Output Market,Monopolistic Output Market,Chapter 14,Slide 41,Labor Market Equilibrium,Equilibrium in a Competitive Output Market DL(MRPL) = SL wC = MRPL MRPL = (P)(MPL) Markets are efficient,Equilibri
26、um in a Monopolistic Output Market MR P MRP = (MR)(MPL) Hire LM at wage wM vM = marginal benefit to consumers wM = marginal cost to the firm,Chapter 14,Slide 42,Labor Market Equilibrium,Equilibrium in a Competitive Output Market DL(MRPL) = SL wC = MRPL MRPL = (P)(MPL) Markets are efficient,Equilibri
27、um in a Monopolistic Output Market Profits maximized Using less than the efficient level of input,Chapter 14,Slide 43,Economic Rent For a factor market, economic rent is the difference between the payments made to a factor of production and the minimum amount that must be spent to obtain the use of
28、that factor.,Equilibrium in a Competitive Factor Market,Chapter 14,Slide 44,Economic Rent,Number of Workers,Wage,0,The economic rent associated with the employment of labor is the excess of wages paid above the minimum amount needed to hire workers.,Chapter 14,Slide 45,Economic Rent,Question What wo
29、uld be the economic rent if SL is perfectly elastic or perfectly inelastic?,Chapter 14,Slide 46,Land: A Perfectly Inelastic Supply With land inelastically supplied, its price is determined entirely by demand, at least in the short run.,Equilibrium in a Competitive Factor Market,Chapter 14,Slide 47,L
30、and Rent,Number of Acres,Price ($ per acre),Chapter 14,Slide 48,Pay in the Military,During the Civil War 90% of the armed forces were unskilled workers involved in ground combat. Today, only 16% are unskilled workers involved in ground combat.,Chapter 14,Slide 49,Pay in the Military,Shortages of ski
31、lled personnel has occurred? Why? Hint: If there is a shortage, the wage must be below the?,Chapter 14,Slide 50,The Shortage of Skilled Military Personnel,Number of Skilled Workers,Wage,Chapter 14,Slide 51,Pay in the Military,Military pay is based on years of service not MRP. MRP increases and the p
32、rivate sector pay is greater than military pay. Many leave the military.,Chapter 14,Slide 52,Pay in the Military,Solution Selective reenlistment bonuses Base pay on MRP,Chapter 14,Slide 53,Factor Markets with Monopsony Power,Assume The output market is perfectly competitive. Input market is pure mon
33、opsony.,Chapter 14,Slide 54,Marginal and Average Expenditure,Units of Input,Price (per unit of input),0,1,2,3,4,6,5,5,10,15,20,Chapter 14,Slide 55,Factor Markets with Monopsony Power,Examples of Monopsony Power Government Soldiers Missiles B2 Bombers NASA Astronauts Company town,Chapter 14,Slide 56,
34、Monopsony Power in the Market for Baseball Players,Baseball owners created a monopsonistic cartel Reserve clause prevented competition for players 1975-Free agency after six years 1969-Average salary was $42,000 ($200,000 in 1999 dollars) 1997-Average salary was $1,383,578,Chapter 14,Slide 57,Baseba
35、ll owners created a monopolistic cartel 1975 salaries were 25% of team expenditures 1980 salaries were 40% of team expenditures,Monopsony Power in the Market for Baseball Players,Chapter 14,Slide 58,Teenage Labor Markets and the Minimum Wage,When the minimum wage rose in New Jersey in 1992 from $4.2
36、5 to $5.05, a survey conducted found a 13% increase in employment.,Chapter 14,Slide 59,Explanations Reduction in fringe benefits Lower pay for more productive workers Monopsony market,Teenage Labor Markets and the Minimum Wage,Chapter 14,Slide 60,Findings None of the explanations are validated by th
37、e survey results Indicates of the need for further study,Teenage Labor Markets and the Minimum Wage,Chapter 14,Slide 61,Factor Markets with Monopoly Power,Just as buyers of inputs can have monopsony power, sellers of inputs can have monopoly power. The most important example of monopoly power in fac
38、tor markets involves labor unions.,Chapter 14,Slide 62,Monopoly Power of Sellers of Labor,Number of Workers,Wage per worker,Chapter 14,Slide 63,SL,DL,MR,Monopoly Power of Sellers of Labor,Number of Workers,Wage per worker,A,L*,w*,Chapter 14,Slide 64,The primary determinant of controlling wage and ec
39、onomic rent is controlling the supply of labor,Factor Markets with Monopoly Power,Chapter 14,Slide 65,A Two-Sector Model of Labor Employment Union monopoly power impacts the nonunionized part of the economy.,Factor Markets with Monopoly Power,Chapter 14,Slide 66,Wage Determination in Unionized and N
40、onunionized Sectors,Number of Workers,Wage per worker,Chapter 14,Slide 67,Bilateral Monopoly Market in which a monopolist sells to a monopsonist.,Factor Markets with Monopoly Power,Chapter 14,Slide 68,Bilateral Monopoly,Number of Workers,Wage per worker,5,10,15,20,25,10,20,40,Chapter 14,Slide 69,Bil
41、ateral Monopoly,Observations Hiring without union monopoly power MRP = ME at 20 workers and w = $10/hr Unions objective MR = MC at 25 workers and w = $19/hr,Chapter 14,Slide 70,Bilateral Monopoly,Who Will Win? The union will if its threat to strike is credible. The firm will if its threat to hire no
42、n-union workers is credible. If both make credible threats the wage will be at wc.,Chapter 14,Slide 71,The Decline of Private Sector Unionism,Observations Union membership and monopoly power has been declining. Initially, during the 1970s, union wages relative to nonunion wages fell.,Chapter 14,Slid
43、e 72,Observations In the 1980s union wages stabilized relative to non-union wages. In the 1990s membership has been falling and wage differential has remained stable.,The Decline of Private Sector Unionism,Chapter 14,Slide 73,Explanation The unions have been attempting to maximize the individual wag
44、e rate instead of total wages paid. The demand for unionized employees has probably become increasingly elastic as firms find it easier to substitute capital for skilled labor.,The Decline of Private Sector Unionism,Chapter 14,Slide 74,Wage Inequality-Have Computers Changed the Labor Market?,1950 -
45、1980 Relative wage of college graduates to high-school graduates hardly changed 1980-1995 The relative wage grew rapidly,Chapter 14,Slide 75,Wage Inequality-Have Computers Changed the Labor Market?,In 1984, 25.1% of all workers used computers 1993 - 46.6% 1999 - nearly 60%,Chapter 14,Slide 76,Wage I
46、nequality-Have Computers Changed the Labor Market?,Percent change in use of computers College degrees 1984 - 1993 - 42 to 70% Less than high school degree 5 to 10% With high school degree 19 to 35%,Chapter 14,Slide 77,Wage Inequality-Have Computers Changed the Labor Market?,Growth in wages - 1983 -
47、1994 College graduates using computers - 11% Non-computer users - less than 4%,Chapter 14,Slide 78,Wage Inequality-Have Computers Changed the Labor Market?,1993 - 1997 High school dropouts out of school less than 10 years earned 29% less than high school graduates 1963 - The differential was only 19
48、%,Chapter 14,Slide 79,Wage Inequality-Have Computers Changed the Labor Market?,1993 - 1997 Average weekly wage for college graduates (out of school less than 10 years) was 96% higher than high school graduates. College graduation premium has more than doubled.,Chapter 14,Slide 80,Summary,In a compet
49、itive input market, the demand for an input is given by the MRP, the product of the firms marginal revenue, and the marginal product of the input. A firm in a competitive labor market will hire workers to the point at which the marginal revenue product of labor is equal to the wage rate.,Chapter 14,Slide 81,Summary,The market demand for an input is the horizontal sum of the industry demands for the input. When factor marke