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Women , Men , & Work

Women , Men , & Work. Professor Karen Leppel. Introduction and Overview of Supply & Demand in the Labor Market. Economics : The study of the allocation of scarce resources.

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Women , Men , & Work

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  1. Women, Men, & Work Professor Karen Leppel

  2. Introduction and Overview of Supply & Demand in the Labor Market

  3. Economics: The study of the allocation of scarce resources.

  4. Because resources are scarce, people need to make choices. You need to decide between alternatives, because you can not do everything. To do option A, you have to give up the opportunity to do option B. So, option B is the opportunity cost of option A.

  5. As you discovered in Microeconomics, the theory of supply and demand underlies much of economics. We, therefore, will review briefly here the basics of supply and demand analysis.

  6. Law of Demand There is a negative relation between the price of a item and the amount of the item that buyers are willing to purchase.

  7. Law of Supply There is a positive relation between the price of a item and the amount of the item that suppliers are willing to provide.

  8. The laws of demand and supply can also be applied to the labor market.

  9. Demand side: The higher the price of labor or wage for a job, the less labor firms will want to hire.

  10. Three Reasons for Negative Relation between the Wage and the Quantity Demanded of Labor • Diminishing Marginal Productivity Additional units of labor provide progressively less additional output when combined with given amounts of capital (plant & equipment). So employers are only willing to hire additional labor at lower and lower wages.

  11. Three Reasons for Negative Relation between the Wage and the Quantity Demanded of Labor 2. Substitution EffectWhen the price of an input changes, while the price of a substitute input remains the same, profit-maximizing employers will tend to use more of the one that is now relatively cheaper and less of the one that is now relatively more expensive.

  12. Three Reasons for Negative Relation between the Wage and the Quantity Demanded of Labor 3. Scale EffectAs wages increase, the price of the product increases, and less of it is purchased. So, fewer workers are needed to produce the product.

  13. So the demand curve slopes downward.

  14. wage Demand Quantity of labor

  15. Supply side:The higher the price of labor or wage for a job, the greater the number of workers who are willing to work in the job.

  16. So the supply curve slopes upward.

  17. wage Supply Quantity of labor

  18. This positive relation applies to the number of individuals available for a job, but not necessarily to the number of hours worked by a particular individual. We’ll discuss this in more detail later in the course.

  19. When the quantity demanded is equal to the quantity supplied, we have equilibrium. Equilibrium means that there is no tendency for things to change. The system is in balance.

  20. Equilibrium occurs at the intersection of the supply and demand curves. wage equilibrium Supply Demand Quantity of labor

  21. The equilibrium quantity can be read from the horizontal axis. wage equilibrium Supply Demand Quantity of labor equilibrium quantity

  22. The equilibrium wage can be read from the vertical axis. wage equilibrium Supply equilibrium wage Demand Quantity of labor equilibrium quantity

  23. Recall the distinctions between a change in demandanda change in quantity demanded, and between a change in supplyand a change in quantity supplied.

  24. Change in Quantity Demanded • a movement along a particular demand curve • the result of a change in the price of the item in question. For example, the quantity demanded of accountants will decrease if there is an increase in the wage of accountants.

  25. If the wage increases from $20 to $30, quantity demanded decreasesfrom 500 to 450. wage 30 20 Demand quantity of accountants 450 500

  26. The demand curve does not shift when the price of an item changes! We simply move from one point on the curve to another point on the same curve.

  27. Change in Demand • a shift of the entire demand curve • happens when there is a change in something other than the price of the item in question.

  28. For example, the demand for accountants will increase if new laws make preparing your own taxes more complicated. wage New Demand Demand quantity of accountants

  29. Change in Quantity Supplied • a movement along a particular supply curve • the result of a change in the price of the item in question. For example, the quantity supplied of accountants will increase if there is an increase in the wage of accountants.

  30. If the wage increases from $20 to $30, quantity supplied increases from 575 to 600. wage Supply 3020 quantity of accountants 475 500 525 550 575 600 625

  31. The supply curve does not shift when the price of an item changes! We simply move from one point on the curve to another point on the same curve.

  32. Change in Supply • a shift of the entire supply curve • happens when there is a change in something other than the price of the item in question.

  33. wage Supply New Supply For example, if low cost government training programs make it easier to get trained as an accountant, the supply of accountants would be expected to increase. quantity of accountants

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