Your SlideShare is downloading. ×
0
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Mic 13
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Mic 13

356

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
356
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
18
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • Au: Add appropriate title in this slide.
  • Au: Please add figure here.
  • Au: Please add figure here. Au: Please add figure here. Au: Please add figure here. Au: Please add figure here. Au: Please add figure here. Au: Please add figure here. Au: Please add figure here.
  • Au: Add figure here.
  • Au: Add figure here.
  • Au: Add figure here.
  • Au: Add figure here.
  • Au: Add example here.
  • Au: Add figure here.
  • Au: Add case study.
  • Transcript

    • 1. Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 1
    • 2. CHAPTER13 Labour and Wages Microeconomics All Rights Reserved © Oxford University Press Malaysia, 2008 13– 2
    • 3. INTRODUCTION Cobb-Douglas production model that shows the relationship between inputs and outputs is formalized by a production function of the form Q = f (K,L,M), where • Q represents the firm’s output of a particular good during a period. • K represents capital. • L represents labour input. • M represents raw material.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 3
    • 4. FOUR FACTORS OF PRODUCTION AND THEIR PAYMENTS • Land - Rent • Labour - Wages • Capital - Interest • Entrepreneurship - ProfitMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 4
    • 5. PAYMENT FOR FACTORS OF PRODUCTION • When a new Information Technology (IT) college is set up to produce graduates for human capital specializing in IT, it needs lecturers to teach IT courses (mental labour), the physical space on which a college sit (land), a building, class room furniture and teaching enable classroom (capital), and the head of college or the CEO to manage the college (entrepreneurship).Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 5
    • 6. TYPES OF DEMAND FOR FACTORS OF PRODUCTIONDerived DemandFirm’s demand for factors of production derivedfrom its decision to supply a good in anothermarket.Joint DemandProduction needs more than one factor ofproduction.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 6
    • 7. THEORY OF MARGINAL PRODUCTIVITY The demand for a factor depends on its marginal revenue product. The greater the productivity of the factor, the greater will be the demand for that particular product, ceteris paribus.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 7
    • 8. CONCEPTS IN MARGINAL PRODUCTIVITY Total Physical product (TPP): The total output produced by employing the factors of production. Marginal Physical Product (MPP): The additional of total product as a result of employing one more unit of a factor.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 8
    • 9. CONCEPTS IN MARGINAL PRODUCTIVITY (CON’T) Total Revenue Product (TRP): Total revenue gained by employing factors of production. Marginal Revenue Product (MRP): The additional total revenue as a result of employing one more unit of an input. It is also the demand curve of the factor and it is a downward sloping because of the law of diminishing return.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 9
    • 10. CONCEPTS IN MARGINAL PRODUCTIVITY (CON’T) Monopolistic competition: MRP = MPP X MR Perfect competition: MPP X P/AR/ MR Marginal value product (MVP): Marginal product of an input times the prices of the output. MVP = MPP X PMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 10
    • 11. DETERMINATION OF EQUILIBRIUM PRICE OF A FACTOR Labour markets are determined by the forces of demand and supply. The supply and demand for tomato pickers will determine the price wage and the number of tomato pickers.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 11
    • 12. THE VERSATILITY OF DEMAND AND SUPPLY Supply and demand for tomato pickers determine the wage of the tomato pickers Panel (a) shows how the supply and demand for tomatoes determine the prices of tomatoesMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 12
    • 13. THE VERSATILITY OF DEMAND AND SUPPLY (CON’T)Panel (b) shows how thesupply and demand fortomatoes determine the wageof the tomato pickersMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 13
    • 14. WAGES AND WAGE DIFFERENTIAL According to the Oxford Dictionary of Economics, wage is a payment for work performed by an employee. Wage differential is the difference in wage rates between two types of worker. It may be on account of different levels of skill, formal qualifications, between unionized and non- unionized firms, or between workers of different age, sex, or ethnic groups.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 14
    • 15. CHANGE IN WAGE RATE Will change the motivation of individual to work longer hours. For example, with higher wage, people will agree to work overtime, less entertainment or leisure hours, or might retire later. Positively sloped and positive relationship between wage rate and labour supply.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 15
    • 16. TERM OF WAGES Nominal wages refer to the wage or salary in terms of the particular currency of a country, in case of Malaysia is RM. Real wages refer to the purchasing power. For example, if a singer earns RM5000 for each concert, in terms of real wages it means how much the singer can purchase with that amount of income.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 16
    • 17. DEMAND FOR LABOUR: THE MARGINAL PRODUCTIVITY THEORYQuestion: How many tomato pickers will be employed by the owner?The firm will answer this question byweighing up the costs of employing an extralabour against the revenue. In the labourmarkets, the firm will maximize profits wherethe marginal cost of hiring an extra workerequals the marginal revenue that theworker’s output earns for the firm.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 17
    • 18. DEMAND FOR LABOUR: THE MARGINAL PRODUCTIVITY THEORY (CON’T) The profit-maximizing approach MC labour = MR labourMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 18
    • 19. MEASUREMENT OF MARGINAL COST AND REVENUE OF LABOUR Marginal factor cost (MFCL): The amount an additional unit of variable unit (L) adds to the total cost. MFCL = ∆ Q TC/ ∆ L Marginal revenue of labour (MRPL): The amount an additional unit of the variable input (L) adds to total revenue. MFLL = MPPL X MPQMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 19
    • 20. OPTIMAL USE OF VARIABLE INPUT (L) The optimal level occurs at the point where the marginal benefits are equal to the marginal costs.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 20
    • 21. THE PROFIT MAXIMIZING LEVEL OF EMPLOYMENT FOR A FIRM • The profit maximizing level is at point a.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 21
    • 22. THE PROFIT MAXIMIZING LEVEL OF EMPLOYMENT FOR A FIRM (CON’T) Average and marginal physical productMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 22
    • 23. DERIVATION OF THE FIRM’S DEMAND CURVE FOR LABOUR Wage rate at three different levelsMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 23
    • 24. FACTORS THAT AFFECT THE POSITION OF THE DEMAND FOR LABOUR • Wage rate • Productivity of labour • Demand for the goodMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 24
    • 25. DERIVATION OF THE INDUSTRY DEMAND CURVE FOR LABOUR When more workers are being employed, the total industry output will increase, and hence P (and MR) will be pushed downMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 25
    • 26. LABOUR SUPPLY Labour is provided to labour markets by individuals who choose among available employment opportunities. A rational individual will refuse to work long hours, take early retirement and choose to work freelance.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 26
    • 27. UTILITY MAXIMIZATION A person maximizes utility by choosing H* hours of leisure and consumption of C*Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 27
    • 28. THE OPPORTUNITY COST OF LEISURE People have to bear the cost for each hour they do not work and it should be the real wage. Real wage is that people can turn their earnings into actual consumer goods.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 28
    • 29. INCOME EFFECT OF A CHANGE IN THE REAL WAGE Income Effect (IE): A rise in wage tends to increase leisure. Since leisure is a normal good, the higher income resulting from a higher w increases the demand for it.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 29
    • 30. SUBSTITUTION EFFECTS OF A CHANGE IN THE REAL WAGE (CON’T) Substitution Effect (SE): Effect of increase in w on the hours of leisure is to reduce it. As leisure becomes more expensive, there is reason to consume less of it.Microeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 30
    • 31. EFFECT OF AN INCREASE IN WAGE RATEFigure 13.7 illustrates two different reactions to an increase in wMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 31
    • 32. MARKET SUPPLY CURVE FOR LABOUR • Labour supply curves will always have positive slopes if people are willing to assume that in most substitution effects of wage changes will be more important than income effects. • SE>IEMicroeconomics All Rights Reserved© Oxford University Press Malaysia, 2008 13– 32

    ×