Classical model of the labor market, Macroeconomics

Assignment Help:

Q. Classical model of the labor market?

We begin by explaining the classical model of the labor market. 

The demand for labor LDis assumed to be inversely related to the real wage W/P

Profit-maximizing firms would want to use labor up to the point where marginal product of labor MPL is equal to the real wage W/P. We have previously presumed that MPL is decreasing in L and demand for labor can be explained in the following graph. 

1778_Classical model of the labor market.png

Figure: The demand for labor

From the graph you can conclude that aggregate demand for labor, or just the demand for labor depends on the real wage. If the real wage increases, demand for labor decreases and vice versa. For instance, the demand for labor will fall if W increases and/or if P decreases however it won't change if W and P increase by the same percentage. 

In the classical model, markets are characterized by perfect competition and firms can't affect W and P. Though, they do decide how much labor to hire. If you sum all the labor that firms want to hire you get total demand for labor.


Related Discussions:- Classical model of the labor market

Estimate the optimal level of provision, There are a lot of mosquitoes in ...

There are a lot of mosquitoes in the island of Liholiho. Only two people live in this island, Robinson Crusoe and Man Friday. Their respective demand curves for mosquito control ar

MONETARY POLICY, What are the instruments of monetary policies

What are the instruments of monetary policies

Fed would cause the money supply, One alternative way to calculate the tota...

One alternative way to calculate the total change in money supply when the Fed injects money into the economy or takes away money from the economy is the amount of money injected o

Interdependence of macroeconomics and microeconomics , INTERDEPENDENCE OF M...

INTERDEPENDENCE OF MACROECONOMICS AND MICROECONOMICS In microeconomics, the underlying assumption is that the total output, total employment and total spending are given. It th

Homework Help, An unanticipated demand-pulled inflation would normally lead...

An unanticipated demand-pulled inflation would normally lead to all the following problems except?

Money demand, What will happen to the shape of the money demand curve if th...

What will happen to the shape of the money demand curve if the checking accounts bear interest? will it still slope down if the interest of the checking account is fixed while the

Determine the current in the neutral conductor, A 415V, 3-phase, 4 wires, s...

A 415V, 3-phase, 4 wires, star-connected system supplies three resistive loads as shown in Figure. Determine (a) The current in each line and (b) The current in the neutr

What do you mean by capital flows, Q. What do you mean by Capital Flows? ...

Q. What do you mean by Capital Flows? With free capital flows, this is a very unreasonable assumption. If we domestic interest rate increase against the foreign interest rates,

Write Your Message!

Captcha
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!

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