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

#GDP, #“Nominal GDP declined between 2008 and 2009, therefore the GDP defla...

#“Nominal GDP declined between 2008 and 2009, therefore the GDP deflator must also have declined.”

Benefits of private actions, Public policies often alter the costs and bene...

Public policies often alter the costs and benefits of private actions. Why is it important for policymakers to consider both the direct and indirect effects of public policies? Sel

.business cycle, define business cycle

define business cycle

Calculating consumption, how to calculate consumption from saving and tax

how to calculate consumption from saving and tax

Labor is continuously compounded, Function given: Qt=A0Lt^6Kt^4, Lt=L0e^.03...

Function given: Qt=A0Lt^6Kt^4, Lt=L0e^.03t, Kt=K0e^.02t 1. Growth of labor is continuously compounded at 3% 2. Growth of Capital is continuously compounded at 2% Solve:

Unusually high period, The consumer price index for the 1978-82 periods and...

The consumer price index for the 1978-82 periods and the GDP deflator follow. This was a period of unusually high, but declining, inflation. (The CPI is equal to 100 in the base ye

Marginal approach to profit maximization, The marginal approach to profit m...

The marginal approach to profit maximization means that a firm should produce until a. marginal revenue equals zero b. marginal revenue equals marginal costs c. marginal cost becom

Relate central banks with commercial banks, Relate central banks with comme...

Relate central banks with commercial banks In many countries, the central bank imposes reserve requirements. This means that commercial banks are obliged to hold a certain perc

Fiscal deficit, calculation of fiscal deficit

calculation of fiscal deficit

Determinants of money supply, Determinants of Money Supply The precedi...

Determinants of Money Supply The preceding sections concentrate on the processes through which the commercial banking system creates and destroys deposits by purchasing and se

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: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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