User Account

All Pages

classical labour market, Macroeconomics

Assignment Help:
A rise in the real wage will bring a decrease in the quantity demanded of labor because of diminishing returns in production. As more and more labor is employed, it is increasingly less productive. Firms will seek to maximize profits, which means that they will continue to employ labor as long the marginal product exceeds the real wage paid. The last hour of labor hired will be that hour where the marginal product is equal to the real wage. If the real wage increases, the firm will then find that the marginal product of the last labor hour is less than the real wage. This decreases profits, so the firm will reduce the amount of labor it employs unless once again the marginal product of the last hour of labor employed is equal to the real wage.

5. An increase in the real wage will increase the quantity of labor supplied for two reasons: the hours supplied per person will increase; and the labor force participation rate will increase. When the real wage increases the opportunity cost of leisure, which means that households will be willing to supply more labor. This will increase the households'' incomes, which will increase the households'' demand for all normal goods, including leisure. However, this income effect is assumed to be smaller than the opportunity cost effect, so the hours per person will increase. When the real wage increases, the relative value of other productive activities decreases. This means that more people who had previously chosen not to be part of the labor force because the real wage was less than the value of other productive activities are now more likely to find the real wage higher than alternatives and will chose to enter the labor force.

6. If the real wage is above or below the full-employment level there will be a surplus or shortage of labor that will then cause the real wage to adjust. For example, if the real wage is above the full-employment level, there is a surplus of labor. This will cause the real wage to fall. If the real wage is below the full-employment level, then (in the long run) there is a shortage of labor and this will cause the real wage to rise. In either case, the real wage will adjust until the surplus or shortage is eliminated and the labor market is in equilibrium at full-employment.

7. Potential GDP is determined from the labor market equilibrium. When the labor market is in equilibrium, there is full employment. This is the amount of employment which in turn determines the amount of potential GDP.

Related Discussions:- classical labour market

Policy position by utilizing the examples, While referring to the "EYE on Y...

While referring to the "EYE on YOUR LIFE" section on page 183 of the textbook, apply this concept to your life. Develop your own policy position on price floors and price ceilings.

Weights of a sample of five boxes, The weights of a sample of five boxes be...

The weights of a sample of five boxes being sent by FedEx are: 48, 24, 28, 12, and 40. (a) Compute the range. (b) Compute the mean deviation. (c) Compute the standard devi

Result of an export subsidy, Which of the following is a result of an expor...

Which of the following is a result of an export subsidy? a. The imposing nation always benefits from an export subsidy. b. The imposing nation suffers a terms of trade loss from an

Identification problem associated, Note and explain the identification prob...

Note and explain the identification problem associated with the following statement. "During Bill Clinton's presidency the US economy saw unusually strong economic growth; thus, Mr

Liberalisation of capital account and convertibility issue, Liberalisation ...

Liberalisation of Capital Account and Convertibility Issue: Broadly speaking and irrespective of sector specificity, a liberalised system is one where the role of the governme

Analitical approch, what is analitical approch to macroeconomics

what is analitical approch to macroeconomics

National income accounting, exam notes of national income accounting

exam notes of national income accounting

Inherited a piece of commercial real estate, Until recently you worked as a...

Until recently you worked as an accountant, earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decided to leav

Annual fixed cost for a light fixture, The annual fixed cost for a light fi...

The annual fixed cost for a light fixture manufacturing company are $38,000, and the variable costs are $40 per unit. If the selling price per unit is p = 485 - 1.395X, what is the

Explain about price inflation, Q. Explain about Price Inflation? The ma...

Q. Explain about Price Inflation? The major reason for allowing for non-constant wages in the model is that we then can allow for persistent deflation/inflation. With constant

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd