Sub: Economics Topic: Demand curve
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The Demand For Labor
demand for labor
and other productive inputs is different from the demand for consumerproducts such as iPods, books, haircuts, and pizza. Firms use workers to produce the productsdemanded by consumers, and so economists say that labor demand is a derived demand. That is, it isdetermined by, or derived from, the demand for the products that workers produce.
Labor Demand by an Individual Firm in the Short Run.
Consider a perfectly competitive firmthat produces rubber balls. Because this firm is perfectly competitive, it takes the price of itsoutput and the prices of its inputs as given. Because it hires a tiny fraction of the workers inthe labor market, it takes the market wage as given and can hire as many workers as it wantsat that wage. In addition, the firm produces a tiny fraction of the rubber balls sold in themarket, so it takes the price of its output as given. Let
’s say the
price of rubber balls is $0.50.Consider the firms hiring decision in the short run, defined as the period during which at leastone input for example, its factory cannot be changed. The firm will pick the quantity of labor atwhich the marginal benefit of labor equals the marginal cost of labor. It can hire as manyworkers as it wants at the market wage, so the marginal cost of labor equals the hourly wage.If the wage is $8 per hour, the extra cost associated with one more hour of labor the marginalcost is $8, regardless of how many workers the firm hires.
Labor Demand in the Long Run.
long-run demand curve for labor
shows the relationshipbetween the wage and the quantity of labor demanded over the long run, when the number of firms in the market can change and firms in the market can modify their production facilities.Although there are no diminishing returns in the long run, the market demand curve is still