1. Learning Objectives: The Factors of Production LO1: Understand that the demand for labour depends on the productivity of labour. LO2: Understand other important factors operating in the labour market. LO3: Explain why factors that are highly inelastic in supply require special analysis. CHAPTER 12 12-1© 2012 McGraw-Hill Ryerson Limited

2. Factors of Production Product Market the market for consumer goods and services Factor Market the market for factors of production 12-2© 2012 McGraw-Hill Ryerson Limited LO1

3. The Labour Market Marginal Revenue Product the increase in a firm’s total revenue that results from the use of one more unit of input 12-3© 2012 McGraw-Hill Ryerson Limited LO1 OR

4. © McGraw Hill Publishing Col, 201112-4 LO1

5. © McGraw Hill Publishing Col, 201112-5 LO1

6. The Supply of Labour Labour Force the total number of people over the age of 15 who are willing and able to work Labour Force Supply the total hours that those in the labour force are willing to work 12-6© 2012 McGraw-Hill Ryerson Limited LO1

7. © McGraw Hill Publishing Col, 201112-7 LO1

8. © McGraw Hill Publishing Col, 201112-8 LO1

9. © McGraw Hill Publishing Col, 201112-9 LO1

10. Self-Test 12-10© 2012 McGraw-Hill Ryerson Limited Assuming that the output can be sold for $3 per unit, fill in the table: If the firm can hire all the labour it wants for $9 an hour, how many hours per week will it hire, and what output will it produce? LO1 Hours of Labour Total Product Marginal Product Marginal Revenue Product ($) 00 13 27 313 418 522 625 727 828

11. Monopsony a market structure in which there is only one buyer additional labour can be hired only if a higher wage rate is offered higher wage rate applies to all workers, not just last one hired monopsonist therefore faces an upward-sloping supply of labour curve 12-11© 2012 McGraw-Hill Ryerson Limited LO1

12. Monopsony 12-12© 2012 McGraw-Hill Ryerson Limited LO1

13. a) Complete columns (3) and (4). b)How many workers will be employed and what will be the wage rate? Hourly Total Wage Marginal Wage MRP Workers Wage Cost Cost (=Demand) 11628 21727 31826 41925 52024 62123 72222 82321 Self-Test 12-13© 2012 McGraw-Hill Ryerson Limited LO1

14. Productivity and Real Wage Real Wage the purchasing power of the nominal wage; that is, nominal wage divided by the price level Nominal Wage the wage rate expressed as a dollar-and-cents figure 12-14© 2012 McGraw-Hill Ryerson Limited LO1

15. Productivity and Real Wage An economy’s real output and real income are the same thing Thus, an economy’s real income (real wage rate) per worker can only increase at about the same rate as its output per worker 12-15© 2012 McGraw-Hill Ryerson Limited LO1

16. Summary Both supply and demand are determinants of wage rates. There are distinct long-run trends of growth in both the labour supply and demand. The average real wage for labour for the whole economy has increased over time, and this increase is closely related to increases in labour productivity. 12-16© 2012 McGraw-Hill Ryerson Limited LO1