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Labor Demand and Supply Analysis Tutorial

The document presents a table detailing the marginal product and profit from hiring additional workers at Terrell’s Television, indicating the firm is a price taker due to constant product pricing. It discusses shifts and movements in the market demand curve for labor in electronics factories based on various events, and explains the backward bending supply of labor phenomenon influenced by the substitution and income effects. Additionally, it notes that a leftward shift in the labor supply curve, with unchanged labor demand, will lead to higher equilibrium wages and lower employment levels.

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Robert Oo
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2 views3 pages

Labor Demand and Supply Analysis Tutorial

The document presents a table detailing the marginal product and profit from hiring additional workers at Terrell’s Television, indicating the firm is a price taker due to constant product pricing. It discusses shifts and movements in the market demand curve for labor in electronics factories based on various events, and explains the backward bending supply of labor phenomenon influenced by the substitution and income effects. Additionally, it notes that a leftward shift in the labor supply curve, with unchanged labor demand, will lead to higher equilibrium wages and lower employment levels.

Uploaded by

Robert Oo
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Tutorial 11 (questions from page 630-635)

1. Complete the following table for Terrell’s Television.

Worker TV MP of Price of TV MRP of Wage Additional


worker worker profit from
hiring one
more
worker
0 0 300 1800
1 8 8 300 2400 1800 600
2 15 7 300 2100 1800 300
3 21 6 300 1800 1800 0
4 26 5 300 1500 1800 -300
5 30 4 300 1200 1800 -600
6 33 3 300 900 1800 -900

a. From the information in the table above, can you determine whether the
firm is a price taker or price maker? Briefly explain.
- price taker, cuz the product price givenin the table is constant n does not depend on the
quantity being sold

b. Use the information in the table above to draw a graph that shows the
demand for worker by this firm. Be sure to indicate the profit maximising
quantity of worker on your graph.
2. State whether each of the following events will result in a movement
along the market demand curve for labour in electronics factories in
China or whether it will cause the market demand curve for labour
to shift? If the demand curve shifts, indicate whether it will shift to
the left or to the right?
a. the wage rate declines - movement
b. The price of television declines - movement
c. Several firms exit the television market- shift to left
d. Chinese high schools introduce new vocational courses in
assembling electronics products.- shift to right

3. How can we explain the phenomenon of the backward bending supply


of labour by an individual? What is the typical shape of the market
supply curve of labour?

A backward bending supply curve can be explained by the substitution effect and
income effect from a rise in wages. the substitution effect refers to the fact that
an increase in the wage raises the opportunity cost of leisure and causes a worker
to devote more time to working and less time to leisure. The income effect refers
to how an increase in the wage will increase a consumer’s purchasing power for
any given number of hours worked. Because leisure is a normal good, a worker to
devote less time to working and more time to leisure. So, the substitution effect
of a wage increase causes a worker to supply a larger quantity of labor, but the
income effect causes a worker to supply a smaller quantity of labor.
however, the market supply curve for labour is typically upward sloping.
If the labour supply curve shifts to the left and the labour demand curve remains
unchanged, what will happen to the equilibrium wage and equilibrium level of
employment? Illustrate your answer with a graph

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