Week 5 Discussion 1
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There are moments in the market when consumers demand a high volume of a specific resource from an industry that it creates a demand for labor; this is referred to as derived demand. According to Amacher & Pate, “The demand for labor has three features that make it somewhat different from the demand for a product. The first is that the demand for labor is derived demand. A firm demands labor because the labor can be used to produce goods that consumers are demanding. The demand for labor is thus derived from the demand for the product the firm produces. If there were no consumer demand for products made from wood, there would be no demand for loggers. This principle holds for all productive resources. They are only valuable to a firm if they help produce products that consumers value.” (Amacher & Pate, 2019). This demand for labor is called derived demand because this labor is dependent on the high level of demand.
In the labor market, a firm’s labor demand curve shows the projected demand for workers at various salary levels. According to Amacher & Pate, “Remember that a demand curve shows the relationship between price and quantity demanded. A demand curve for labor shows how much labor will be demanded at various wage rates.” (Amacher & Pate, 2019). Firms have less incentive to hire more labor because of the rise in labor demand wages. Traditionally this curve is a downward sloping curve because
as a firm increases the number of employees, it decreases marginal productivity.
In the labor market, the workers’ supply curve represents workers' willingness to work additional labor hours. As a labor’s wages increase, the labor is willing to increase their quantity of work hours to obtain more income. According to Amacher & Pate, “An individual’s supply curve of labor looks like the other supply curves we have considered. As wage rates rise, the quantity of labor supplied increases. This supply curve of labor, like most supply curves, is upward sloping. As wage rates rise, an individual will want to work more hours. In general, as wages rise, more people will choose to give up leisure in favor of more income.” (Amacher & Pate, 2019). Traditionally, this curve is an upward sloping curve because as an employee receives increased wages, they are willing to trade away leisure to gain income from additional labor hours.
In a traditional labor market, a firm’s wage is normally determined by the demand of workers and the supply of those available workers. According to Amacher & Pate, “A profit-maximizing firm will employ additional labor until the cost of an additional unit is equal to the benefit, which is when the marginal product of labor is equal to the equilibrium wage.” (Amacher & Pate, 2019). Wages are essential for businesses of any size as they represent a high overhead cost. Therefore, wages can easily be influenced by the cost of living, minimum wage mandates, educational level, etc.
Amazon had several goals when deciding to increase its labor wage well over the $7.25 federal minimum
wage to $15 per hour. First, this increased wage would generate productivity from their employees. Secondly, this new rate would help retain and attract hard-working employees. Lower wages usually create positions with higher turnover rates. The Downside of Amazon raising their salaries is that it does add additional overhead cost, which is usually passed down to the consumers.
The positive effect of Amazon raising its minimum wage is that it should increase the level of productivity of its employees. This move also draws positive public opinion about the company and thus could increase sales and revenue. This move could also influence other large corporations to step up and
provide the same wage levels for their employees, thus providing more livable wages to the lower class.
The negative effect of Amazon raising its minimum wage is that the cost of increased wages is passed down to consumers and thus decreases sales and revenue. This move causing a chain reaction across other companies could cause the price of many different products, thus creating inflation. Although these employees are now earning more revenue, they are spending more money on everyday products.
Resources:
Amacher, R., & Pate, J. (2019). Principles of microeconomics
(2nd ed.). Bridgepoint Education.
Bernstein, J. (2018, October 7). Amazon's raise: Unequivocally good news
(Links to an external site.)Links
to an external site.
. The Journal Gazette
. http://www.journalgazette.net/opinion/columns/20181007/amazons-raise-unequivocally-good-news
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Related Questions
Listed are scenarios that may lead to changes in labor market conditions for chefs. Use your knowledge of labor demand and
supply curves to match each scenario to the appropriate category.
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demand for labor
Will cause a shift in the
supply of labor
Will cause a shift in both
the demand for labor and
supply of labor
Will not result in a
curve shifting
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invented that reduces the
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Answer Bank
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Q8
In the Canadian labour market, demand for labour can be impacted by elasticity of the product in which labour is an input. Suppose that the labour cost to total cost ratio in industry A (cannabis sector) is 14 percent, while in industry B (fertilizer sector) it is 68 percent. Other things equal, labour demand will be
Multiple Choice
more elastic in industry B than in A.
constant in both industries A and B.
relatively elastic in both industries A and B.
relatively inelastic in both industries A and B.
more elastic in industry A than in B.
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demand for labor increases.
demand for labor decreases.
quantity demanded of labor increases, but the demand for labor curve does not shift.
quantity demanded of labor decreases, but the demand for labor curve does not shift.
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The labour demand curve for skilled workers is given by w = e(150 - 5L)/100. The labour demand curve for unskilled workers is w = 50 - 2L. The labour supply for each of the two labour markets is given by L = 20.
The effort of firm's skilled workers depends on their wage according to the following schedule:
wage (w)
20
25
30
35
40
45
Effort (e)
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30
34
36
36
a) Calculate the equilibrium employment, unemployment, and wage for unskilled workers.
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D2
D1
Refer to Figure . Which of the following is a possible explanation of the shift of the labor-demand curve from D1 to D2?
Select one:
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b.The wage earned by automobile workers increased.
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d.The price of automobiles increased.
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A profit-maximizing firm hires workers so long as the wage rate exceeds the value of the marginal product of labor.
Any event that changes the supply or demand for labor must change the equilibrium wage.
Any event that changes the supply or demand for labor must change the value of the marginal product.
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Q5
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Multiple Choice
labour demand is inelastic.
the coefficient of elasticity of labour demand is equal to 1.
labour demand is elastic.
the labour demand curve is upsloping.
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as the other iron smelters all pay an efficiency wage.
Adjust the wage line on the graph to reflect this situation.
What characteristic of efficiency-wage jobs is not
supported by the situation shown in the graph?
Efficiency wage jobs result in a surplus of workers at
the wage being offered.
Elevated wages serve as an economic incentive to
work harder.
The wage rate will eventually return to the
market-clearing level.
Efficiency wages result in an increase in the rate
of unemployment.
Wage ($ per hour)
Quantity of workers (in thousands)
Wage
S
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the
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S₁
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Labor
(Number of workers)
0
OUTPUT (Grills)
400
360
320
280
Use the blue points (circle symbol) to plot the production function for Sizzler's on the following graph.
240
200
160
120
80
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0
1
0
2
3
4
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1
Output
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0
95
185
260
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355
2
3
LABOR (Number of workers)
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Production Function
(?)
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30
27
24
21
18
15
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3
+
+
+
1
2
3
4
5
7
10
LABOUR (Hours worked)
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additional
The wage rate must be S
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fewer
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WAGE (Dollars per hour)
co
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True
False
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Tool tip: You can directly change the values in the boxes with the white background by clicking in the box and typing. The graph and any related
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Related Questions
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