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Chapter 18 生产要素市场The Markets for Factors of Production §1. 生产要素市场一．定义：生产要素Factors of production是指用于生产物品与劳务的投入the inputs used to produce goods and services 二．联系：生产要素市场类似于物品与服务市场不同点在于生产要素的需求是派生需求derived demand即企业的生产要素需求，是从它向另一个市场供给物品的决策派生出来的§2. 劳动需求The Demand for Labor一．劳动需求1.联系：与经济中的其它市场一样，劳动市场也是由供求力量支配的2.结论：大多数劳动服务不是作为最终产品供消费者享用的，而是投入到其它物品的生产中二．生产函数与劳动的边际产量The Production Function and The Marginal Product of Labor1.生产函数The production function：说明用于生产一种物品的投入量与该物品产量之间的关系。
2.劳动的边际产量The marginal product of labor：增加的一个单位劳动所引起的产量增加量。
公式：MPL = ΔQ/ΔL = (Q2–Q1)/(L2–L1)3.边际产量递减Diminishing Marginal Product of Labor随着工人数量增加，劳动的边际产量递减；随着雇佣的工人越来越多，每个增加的工人对苹果产量的贡献越来越小；生产函数随着工人数量增加而变得越来越平坦；这种性质被称为边际产量递减。
三．劳动边际产量值与劳动需求The Value of the Marginal Product of Labor and the Demand for Labor1.边际产量值The value of the marginal product：一种投入的边际产量乘以该产品的价格。
CFA考试一级章节练习题精选0329-19（附详解）1、When the supply curve of a factor is perfectly elastic the factor income is most likely:【单选题】A.entirely economic rent.B.entirely opportunity cost.C.part economic rent and part opportunity cost.正确答案:B答案解析:“Markets for Factors of Production,” Michael Parkin2010 Modular Level I, Vol. 2, p. 293Study Session 5-21-hDifferentiate between economic rent and opportunity costs.When the supply of a factor is perfectly elastic (the supply curve is horizontal), the entire factor income is opportunity cost (see Figure 14 in the reading).2、An analyst does research about characteristics of market structures.Barriers toentry of monopolistic competition are:【单选题】A.low.B.moderate.C.high.正确答案:A答案解析:垄断竞争（monopolistic competition）的市场特点如下：（1）进入壁垒低；（2）市场上有很多厂商；（3）产品有差异化；（4）企业有少量的自主定价能力。
3、In a simple economy containing only two goods – apples and shirts – the prices and quantities in the base period and the current period are:Assuming the base period consumer price index (CPI) = 100, the CPI for the current period is closest to:【单选题】A.103.57.B.107.00.C.113.75.正确答案:B答案解析:"Monitoring Jobs and the Price Level” Michael Parkin2010 Modular Level I, Vol. 2, p. 318-319Study Session 5-22-dExplain and calculate the consumer price index (CPI) and the inflation rate, describe the relation between the CPI and the inflation rate, and explain the main sources of CPI bias.The cost of the CPI basket at base period prices is: (25 × $1.00) + (5 × $20.00) = $125. The cost of the CPI basket at current period prices is: (25 × $1.25) + (5 × $20.50) = $133.75. The CPI for the period is ($133.75 / $125) × 100 = 107.4、If the quantity demand for a product increases from 9 units to 13 units when theprice decrease from $ 12 to $ 8, the price elasticity of demand is closest to:【单选题】A.0.91B.1.00C.1.10正确答案:A答案解析:{(13-9)/[(13+9)/2]}/{(8-12)/[(8+12)/2]}=0.3636/-0.4= -0.91，价格需求弹性一般为负数，此处忽略其正负号，用弹性的绝对值表示其大小。
国际经济学第九版英⽂课后答案第14单元*CHAPTER 14(Core Chapter)FOREIGN EXCHANGE MARKETS AND EXCHANGE RATES OUTLINE14.1 Introduction14.2 Functions of the Foreign Exchange MarketsCase Study 14-1: The U.S. Dollar as the Major Vehicle CurrencyCase Study 14-2: The Birth of a New Currency: The Euro14.3 Foreign Exchange Rates14.3a Equilibrium Foreign Exchange RatesCase Study 14-3: Foreign Exchange Quotations14.3b Arbitrage14.3c The Exchange Rate and the Balance of Payments14.4 Spot and Forward Rates, and Foreign Currency Swaps, Futures and Options14.4a Spot and Forward Rates14.4b Currency Swaps14.4c Foreign Exchange Futures and OptionsCase Study 14-4: Quotations on Foreign Currency Futures and OptionsCase Study 14-5: Size, Currency and Geographical Distribution of the Foreign Exchange Market14.5 Foreign Exchange Risks, Hedging, and Speculation14.5a Foreign Exchange Risks14.5b Hedging14.5c Speculation14.6 Interest Arbitrage and Efficiency of Foreign Exchange Markets14.6a Uncovered Interest Arbitrage14.6b Covered Interest Arbitrage14.6c Covered Interest Arbitrage Parity14.6d Covered Interest Arbitrage Margin14.6e Efficiency of Foreign Exchange MarketsCase Study 14-6: Local Currency and Dollar Stock Returns Around the World 14.7 Eurocurrency Markets 14.7a Description and Size of Eurocurrency Markets14.7b Reasons for the Development and Growth of the Eurocurrency MarketCase Study 14-7: Size and Growth of the Eurocurrency Market14.7c Operation and Effects of Eurocurrency Markets14.7d Eurobond and Euronote MarketsCase Study 14-8: Rising Competition in Global BankingAppendix A14.1 Derivation of Formula for Covered Interest Arbitrage MarginKey TermsForeign exchange market Foreign exchange riskVehicle currency HedgingSeignorage SpeculationEuro Stabilizing speculationExchange rate Destabilizing speculationDepreciation Interest arbitrageAppreciation Uncovered interest arbitrageCross Exchange rate Covered interest arbitrageEffective exchange rate Covered interest arbitrage parity (CIAP)Arbitrage Covered interest arbitrage margin (CIAM)Spot rate Efficiency of foreign exchange marketsForward rate EurocurrencyForward discount Eurocurrency marketForward premium Offshore depositsCurrency swaps EurobondsForeign exchange futures EuronotesForeign exchange optionsLecture Guide:1. This is one of the most important and challenging of the core chapters, and tocover it adequately requires five classes.2. I would cover the first three sections in the first class, and spend one class on eachof the remaining four sections.3. Students find hedging and speculation difficult. I would explain them slowly andvery carefully. I would also assign and go over the problems in class.4. Section 6 on interest arbitrage and the efficiency of foreign exchange markets isalso difficult but very important and so I would cover it slowly and very carefully. Answers to Problems:1. a. With supply curve of pounds S￡, the equilibrium exchange rate is R=$2/￡1 andthe equilibrium quantity is Q=￡40 million (point E in Figure 1 on the next page)under a flexible exchange rate system. On the other hand with supply curve ofpounds S’￡, the equilibrium exchange rate would be R=$3/￡1 and the equilibrium quantity would be Q=￡20 million (point B in Figure 1).b. If the United States wanted to maintain the exchange rate fixed at R=3 in Figure 1with supply curve S￡, the U.S. central bank would gain ￡40 million in reservesper day.2. a. See Figure 2 on the next page.b. With supply curve of pounds S*￡, the equilibrium exchange rate would beR=$1/￡1 and Q=￡70 million under a flexible exchange rate system (see Figure 2).c. If the United States wanted to maintain a fixed exchange rate of R=1 in Figure 2with S*￡, the U.S. central bank would lose ￡50 million of reserves per day.3. Use $2 to purchase ￡1 in New York, use the ￡1 to purchase 410 yens in London,and use the 410 yens to purchase $2.05 in Tokyo, thus earning $0.05 in profit for each pound so transferred.4. a. The forces at work that will make the cross exchange rates consistent in currencyarbitrage in the previous problem are as follows. The selling of pounds for yens in London will reduce the yen price of the pound in London until it is 400 yens to 1.b. The consistent cross rates in Problem 3 are: $2=￡1=400 yens.5. a. The pound is at a three-month forward premium of 1c or 0.5% (or 2%/year) withrespect to the dollar.b. The pound is at a three-month forward discount of 4c or 2% (or 8%/year) withrespect to the dollar.6. a. The euro is at three-month forward premium of 1% (or 4%/year) with respect tothe Swiss franc.b. The dollar is at three-month forward discount of 5% (or 20%/year) with respect tothe yen.7. The importer would have to purchase forward ￡10,000 pounds for delivery inthree months at today's FR=$1.96/￡1.After three months (and regardless of what the spot rate is at that time), theimporter would pay $19,600 and obtain the ￡10,000 he needs to make thepayment.8. The exporter would have to sell forward ￡10,000 pounds for delivery in threemonths at today's FR=$1.96/￡1.After three months, the exporter will deliver the ￡10,000 and receive $19,600. 9. The speculator can speculate in the forward exchange market by purchasingpounds forward for delivery in three months at FR=$2/￡1.If the speculator is correct, he will earn 5c per pound purchased.10. The speculator can speculate in the forward exchange market by selling poundsforward.If the speculator is right, he will earn 5c per pound transferred.If, on the other hand, SR=$2.05/￡1, the speculator will lose 5c per pound.11. The interest arbitrageur will earn 2% per year from the purchase of foreign three-month treasury bills if he covers the foreign exchange risk.12. a. If the foreign currency was instead at a forward premium of 1 percent per year, the interest arbitrageur would earn 5% per year.b. If the foreign currency was at a forward discount of 6 percent per year, it wouldpay for investors to transfer funds from the higher- to the lower-interest centerand lose 4% interest but gain 6% from the foreign exchange transaction, for a net gain of 2% per year.13. a. A t point B, the loss of 1% per year from the forward premium on the foreignexchange transaction on the part of the foreign investor is more than made up bythe 2% per year gain from the higher interest rate in our nation.At point B', the 1% interest loss per year on arbitrage inflow into our nation is less than the 2% per year gain on the forward discount on currency transactio n.b.As arbitrage inflow continues from point B, the positive interest differential infavor of our nation declines and the forward premium on the foreign currencyincreases.From B', the interest differential in favor of the foreign country increases and the forward discount on the foreign currency decreases.14. a. A t CIAP, there is no further possibility from increasing returns over and abovethose that investors can achieve in their own country, but this does not mean thatreturns in the two countries are equalized.As proof of this, we can see that in the example given at the end of Section 14.6d, annualized returns remain at 8 percent in London for British investors and are increased from 6 percent to 6.852 for American investors without considering transaction costs and 6.602 percent if we consider transaction costs of 1/4 of 1percent investing in London. Thus, returns become less unequal as a result ofCIA, but are not equalized!App.1a. a. The U.S. investor will get back ($200,000)(1.015)=$203,000.b. The U.S. investor will get back $203,000+($200,000)(0.00213)=$203,000+$426=$203,426.c. The U.S. investor will get back $205,000+($200,000)(0.0025)=$203,000+$500=$203,500, an overestimation of $74.Multiple-choice Questions:1. Which is not a function of the foreign exchange market?a. to transfer funds from one nation to anotherb. to finance trade*c. to diversify risksd. to provide the facilities for hedging2. An increase in the pound price of the dollar represents:*a. an appreciation of the dollarb. a depreciation of the dollarc. an appreciation of the poundd. a devaluation of the dollar3. A change from $1=€1 to $2=€1 represents*a. depreciation of the dollarb. an appreciation of the dollarc. a depreciation of the poundd. none of the above4. A shortage of pounds under a flexible exchange rate system results in:a. a depreciation of the pound*b. a depreciation of the dollarc. an appreciation of the dollard. no change in the exchange rate5. An effective exchange rate is a:a. spot rateb. forward ratec. flexible exchange rates*d. weighted average of the exchange rates between the domestic currency and the nation's most important trade partners6. The exchange rate is kept within narrow limits in different monetary centers by:a. hedging*b. exchange arbitragec. interest arbitraged. speculation7. If SR=$1/€1 and the three-month FR=$0.99/€1:*a. the euro is at a three-month forward discount of 1%b. the euro is at a forward discount of 1% per yearc. the euro is at a three-month forward premium of 1%d. the dollar is at a three-month forward discount of 1%8. Hedging refers to:a. the acceptance of a foreign exchange risk*b. the covering of a foreign exchange riskc. foreign exchange speculationd. foreign exchange arbitrage9. A U.S. importer scheduled to make a payment of €100,000 in three months can hedge his foreign exchange risk by:a. purchasing $100,000 in the forward market for delivery in three monthsb. selling €100,000 in the spot market for delivery in three months*c. purchasing €100,000 in the forward ma rket for delivery in three monthsd. selling €100,000 in the spot market for delivery in three months10. If the three-month FR=$1/€1 and a speculator anticipates that SR=$1.02/€1 in three months, he can earn a profit by:a. selling euros forward*b. purchasing euros forwardc. selling dollars forwardd. purchasing dollars forward11. Destabilizing speculation refers to the:*a. sale of the foreign currency when the exchange rate falls or is lowb. purchase of the foreign currency when the exchange rate falls or is lowc. sale of the foreign currency when the exchange rate rises or is highd. all of the above12. A capital outflow from New York to Frankfurt under covered interest arbitrage can take place if the interest differential in favor of Frankfurt is:a. smaller than the forward discount on the eurob. equal to the forward discount on the euro*c. larger than the forward discount on the eurod. none of the above.13. According to the theory of covered interest arbitrage, if the interest differential in favor of the foreign country exceeds the forward discount on the foreign currency, there will be a:a. capital inflow under covered interest arbitrage*b. capital outflow under covered interest arbitragec. no capital flow under a covered interest arbitraged. any of the above14. When the interest differential in favor of the foreign country is equal to the forward premium on the foreign currency, we:a. are at covered interest arbitrage parity*b. are not at covered interest arbitrage parityc. may or may not be at covered interest arbitrage parityd. we cannot say without additional information15. The currency of the nation with the lower interest rate is usually at a*a. forward premiumb. forward discountc. covered interest arbitrage parityd. any of the above。
Chapter 14 Firms in Competitive Markets 竞争市场中的企业§1. 什么是竞争市场What is A Competitive Market?一．竞争的含义竞争市场又称完全竞争市场 A perfectly competitive market1.三个特征characteristics：①市场中有许多买者和许多卖者There are many buyers and sellers in the market.②各个卖者所提供的物品大体上是相同的The goods offered by the various sellers are largely the same.③企业可以自由地进入或退出市场Firms can freely enter or exit the market.2.两个结果outcomes：①市场上任何一个买者或卖者的行动对市场价格的影响都可以忽略不计The actions of any single buyer or seller in the market have a negligible impact on themarket price.②每一个买者和卖者都把市场价格作为既定的Each buyer and seller takes the market price as given.3.定义：一个有着许多交易相同产品的买者与卖者，以至于每一个买者与卖者都是价格接受者的市场 A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker△价格接受者a price taker：买者和卖者必须接受市场决定的价格Buyers and sellers must accept the price determined by the market二．竞争企业的收益The Revenue of a Competitive Firm1.总收益Total revenue：①一个企业的总收益等于销售价格乘以销售量TR = (P X Q)for a firm is the selling price times the quantity sold；②总收益与产量同比例变化is proportional to the amount of output2.平均收益Average revenue：①等于总收益除以销售量AR = TR÷Q = (P X Q)÷Q = Pis total revenue divided by the quantity sold②在完全竞争市场，平均收益等于物品的价格equals the price of the good③告诉我们企业从普通一个单位产品销售中得到了多少收益tells us how much revenue a firm receives for the typical unit sold3.边际收益Marginal revenue：①增加一个单位销售量所引起的总收益变化MR =ΔTR /ΔQis the change in total revenue from an additional unit sold②对竞争企业来说，边际收益等于物品的销售价格for competitive firms, equals the price of the good§2. 利润最大化与竞争企业的供给曲线Profit Maximization and the Competitive Firm’s Supply Curve 一．边际成本曲线和企业的供给决策（1）竞争企业的利润最大化Profit Maximization for the Competitive Firm1.竞争企业的目标是利润最大化The goal of a competitive firm is to maximize profit.这就意味着企业想生产某一产量，使总收益与总成本的差最大。
Chapter14 练习题及答案1. Buying stock in a corporation is attractive to investors because:A. Stockholders are not liable for the corporation's actions and debts.B. Stock is easily transferred.C. A corporation has unlimited life.D. Shareholders are not agents of the corporation.E. All of these.2. A proxy is:A. A legal document that gives a designated agent of a stockholder the power to vote the stock.B. A contractual commitment by an investor to purchase unissued shares of stock.C. An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.D. The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.E. An arbitrary amount assigned to no-par stock by the corporation's board of directors.3. The board of directors of a corporation:A. Are elected by the corporate registrar.B. Are responsible for day-to-day operations of the business.C. Do not have the power to bind the corporation to contracts, due to lack of mutual agency.D. May not also be executive officers of the corporation, due to the separate entity principle.E. Are responsible for and have final authority for managing corporate activities.4.A corporation is authorized to issue 9,000 shares of $5 common stock, the corporation should report paid-in capital from the issuance of common stock of:A. $ 0.B. $ 1,800.C. $45,000.D. B & C.E. None of these.5. The total amount of stock that a corporation's charter allows it to issue is referred to as:A. Issued stock.B. Outstanding stock.C. Common stock.D. Preferred stock.E. Authorized Stock.6. Par value of a stock refers to the:A. Issue price of the stock.B. Value assigned to a share of stock by the corporate charter.C. Market value of the stock on the date of the financial statements.D. Maximum selling price of the stock.E. Dividend value of the stock.7. When all of the authorized shares have the same rights and characteristics, the stock is calledA. Preferred stock.B. Common stock.C. Par value stock.D. Stated value stock.E. No-par value stock.8. Retained earnings:A. Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.B. Can only be appropriated by setting aside a cash fund.C. Represent an amount of cash available to pay shareholders.D. Are never adjusted for anything other than net income or dividends.E. All of these.9. A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings equals:A. $108,625.B. $(12,625).C. $11,375.D. $43,375.E. $(11,375).。
T H E M A R K E T S F O R T H E F A C T O R S O F P R O D U C T I O NI N T HI S C HA P T E RY O U W I L L . . .A na lyz e t he l a b o rd eman d o f comp etitive, p r o f i t-ma ximizin g f i r m sC on sid er t heh ou seho l d deci sio n st ha t li e b e h i n dl a b o r s u p p l yL ea r n w h ye qui libriu m w ag e s e qua l t h e v al u e o ft h e m a r g in a lp r o d uct o f l a b o rWhen you finish school, your income will be determined largely by what kind of job you take. If you become a computer programmer, you will earn more than if you become a gas station attendant. This fact is not surprising, but it is not obvious why it is true. No law requires that computer programmers be paid more than gas station attendants. No ethical principle says that programmers are more deserv- ing. What then determines which job will pay you the higher wage?Your income, of course, is a small piece of a larger economic picture. In 1999 the total income of all U.S. residents was about $8 trillion. People earned this in- come in various ways. Workers earned about three-fourths of it in the form of wages and fringe benefits. The rest went to landowners and to the owners of capi- tal—the economy’s stock of equipment and st ructures—in the form of rent, profit, and interest. What determines how much goes to workers? To landowners? To the owners of capital? Why do some workers earn higher wages than others, someC on side r h o w th eot he r f actor s o fp r o d u cti o n—l a n d a n d c apita l—ar eco mpe ns ate dEx amin e ho w ach ang e i n t h es up pl y o f on e f acto r a lt ers th e e ar n i ngs o f a l l t h e f actor s397398P A R T SIX THE ECONOM ICS OF L ABOR MARK E TSfa c t o rs o f p r o du c ti onthe inputs used to produce goods and serviceslandowners higher rental income than others, and some capital owners greater profit than others? Why, in particular, do computer programmers earn more than gas station attendants?The answers to these questions, like most in economics, hinge on supply and demand. The supply and demand for labor, land, and capital determine the prices paid to workers, landowners, and capital owners. To understand why some peo- ple have higher incomes than others, therefore, we need to look more deeply at the markets for the services they provide. That is our job in this and the next two chapters.This chapter provides the basic theory for the analysis of factor markets. As you may recall from Chapter 2, the factors of production are the inputs used to produce goods and services. Labor, land, and capital are the three most important factors of production. When a computer firm produces a new software program, it uses pr ogrammers’ time (labor), the physical space on which its o ffices sit (land), and an office building and computer equipment (capital). Similarly, when a gas station sells gas, it uses attendants’ time (labor), the physical space (land), and the gas tanks and pumps (capital).Although in many ways factor markets resemble the goods markets we have analyzed in previous chapters, they are different in one important way: The de- mand for a factor of production is a derived demand. That is, a firm’s demand for a factor of production is derived from its decision to supply a good in another mar- ket. The demand for computer programmers is inextricably tied to the supply of computer software, and the demand for gas station attendants is inextricably tied to the supply of gasoline.In this chapter we analyze factor demand by considering how a competitive, profit-maximizing firm decides how much of any factor to buy. We begin our analysis by examining the demand for labor. Labor is the most important factor of production, for workers receive most of the total income earned in the U.S. econ- omy. Later in the chapter, we see that the lessons we learn about the labor market apply directly to the markets for the other factors of production.The basic theory of factor markets developed in this chapter takes a large step toward explaining how the income of the U.S. economy is distributed among workers, landowners, and owners of capital. Chapter 19 will build on this analysis to examine in more detail why some workers earn more than others. Chapter 20 will examine how much inequality results from this process and then consider what role the government should and does play in altering the distribution of income.Labor markets, like other markets in the economy, are governed by the forces of supply and demand. This is illustrated in Figure 18-1. In panel (a) the supply and demand for apples determine the price of apples. In panel (b) the supply and de- mand for apple pickers determine the price, or wage, of apple pickers.As we have already noted, labor markets are different from most other mar- kets because labor demand is a derived demand. Most labor services, rather thanCHAP TER 18 T HE MARKE TS FOR THE FACTORS OF P RODUC TION 399T HE V ERS ATIL ITY OF S UPPLY A ND D EMAND . The basi c tools of supply and demand apply to goods and to labor services. Panel (a) shows how the supply and demandfor appl es determine the price of apples. Panel (b) shows how the supply and demand for apple pick ers determine the wage of apple pick ers.being final goods ready to be enjoyed by consumers, are inputs into the produc- tion of other goods. To understand labor demand, we need to focus on the firms that hire the labor and use it to produce goods for sale. By examining the link be- tween the production of goods and the demand for labor, we gain insight into the determination of equilibrium wages.TH E CO M PE TITIV E PR O FIT-M A X IM IZ IN G FIRMLet’s look at how a typical firm, such as an apple producer, decides the quantity of labor to demand. The firm owns an apple orchard and each week must decide how many apple pickers to hire to harvest its crop. After the firm makes its hiring decision, the workers pick as many apples as they can. The firm then sells the ap- ples, pays the workers, and keeps what is left as profit.We make two assumptions about our firm. First, we assume that our firm is competitive both in the market for apples (where the firm is a seller) and in the market for apple pickers (where the firm is a buyer). Recall from Chapter 14 that a competitive firm is a price taker. Because there are many other firms selling apples and hiring apple pickers, a single firm has little influence over the price it gets for apples or the wage it pays apple pickers. The firm takes the price and the wage as given by market conditions. It only has to decide how many workers to hire and how many apples to sell.Second, we assume that the firm is profit-maximizing. Thus, the firm does not directly care about the number of workers it has or the number of apples it pro- duces. It cares only about profit, which equals the total revenue from the sale of400 P A R T SIX THE ECONOM ICS OF L ABOR MARK E TSH OW THE C OM PE TITIV E F IRM D E CIDE S H OW M UCH L AB OR TO H IREapples minus the total cost of producing them. The firm’s supply of apples and its demand for workers are derived from its primary goal of maximizing profit.TH E PROD U CTION FUN CTIO N AN D TH E M A RG INA L PR OD U CT O F L ABO Rp r o du c t i on fu n ct i on the relationship between the quantity of inputs used to make a good and the quan tity of ou tput of that goodm a r g ina l pr o du cto f l a b o rthe increase in the amount of ou tput from an additional unit of laborTo make its hiring decision, the firm must consider how the size of its workforce affects the amount of output produced. In other words, it must consider how the number of apple pickers affects the quantity of apples it can harvest and sell. Ta- ble 18-1 gives a numerical example. In the first column is the number of workers. In the second column is the quantity of apples the workers harvest each week.These two columns of numbers describe the firm’s ability to produce. As we noted in Chapter 13, economists use the term production function to describe the relationship between the quantity of the inputs used in production and the quan- tity of output from production. Here the “input” is the apple pickers and the “out - put ” is the apples. The other inputs —the trees themselves, the land, the firm’s trucks and tractors, and so on —are held fixed for now. This firm’s production function shows that if the firm hires 1 worker, that worker will pick 100 bushels of apples per week. If the firm hires 2 workers, the two workers together will pick 180 bushels per week, and so on.Figure 18-2 graphs the data on labor and output presented in Table 18-1. The number of workers is on the horizontal axis, and the amount of output is on the vertical axis. This figure illustrates the production function.One of the Ten Principles of Economics introduced in Chapter 1 is that rational people think at the margin. This idea is the key to understanding how firms decide what quantity of labor to hire. To take a step toward this decision, the third column in Table 18-1 gives the marginal product of labor, the increase in the amount of output from an additional unit of labor. When the firm increases the number of workers from 1 to 2, for example, the amount of apples produced rises from 100 to 180 bushels. Therefore, the marginal product of the second worker is 80 bushels.CHAP TER 18 T HE MARKE TS FOR THE FACTORS OF P RODUC TION 401Notice that as the number of workers increases, the marginal product of labordeclines. As you may recall from Chapter 13, this property is called diminishing marginal product. At first, when only a few workers are hired, they pick apples from the best trees in the orchard. As the number of workers increases, additional workers have to pick from the trees with fewer apples. Hence, as more and more workers are hired, each additional worker contributes less to the production of apples. For this reason, the production function in Figure 18-2 becomes flatter as the number of workers rises.TH E VA LUE O F THE MA RG IN AL PRO DU CTA N D TH E DE M AN D FOR L A BO ROur profit-maximizing firm is concerned more with money than with apples. As a result, when deciding how many workers to hire, the firm considers how much profit each worker would bring in. Because profit is total revenue minus total cost, the profit from an additional worker is the worker ’s contribution to revenue minus the worker ’s wage.To find the worker ’s contribution to revenue, we must convert the marginal product of labor (which is measured in bushels of apples) into the value of the mar- ginal product (which is measured in dollars). We do this using the price of apples. To continue our example, if a bushel of apples sells for $10 and if an additional worker produces 80 bushels of apples, then the worker produces $800 of revenue.The value of the marginal product of any input is the marginal product of that input multiplied by the market price of the output. The fourth column in Ta- ble 18-1 shows the value of the marginal product of labor in our example, assum- ing the price of apples is $10 per bushel. Because the market price is constant for a competitive firm, the value of the marginal product (like the marginal product it- self) diminishes as the number of workers rises.d im inish in g ma r g i n a lp r o du c tthe property whereby the mar ginal product of an input declines as the quantity of the input increasesva lu e of th e ma r g i n a lp r o du c tthe mar ginal product of an input times the price of the output402 P A R T SIX THE ECONOM ICS OF L ABOR MARK E TSNow consider how many workers the firm will hire. Suppose that the marketwage for apple pickers is $500 per week. In this case, the first worker that the firmhires is profitable: The first worker yields $1,000 in revenue, or $500 in profit. Sim-ilarly, the second worker yields $800 in additional revenue, or $300 in profit. Thethird worker produces $600 in additional revenue, or $100 in profit. After the thirdworker, however, hiring workers is unprofitable. The fourth worker would yieldonly $400 of additional revenue. Because the worker ’s wage is $500, hiring thefourth worker would mean a $100 reduction in profit. Thus, the firm hires onlythree workers.It is instr uctive to consider the firm’s decision graphicall y. Figure 18-3 graphsthe value of the marginal product. This curve slopes downward because the mar-ginal product of labor diminishes as the number of workers rises. The figure alsoincludes a horizontal line at the market wage. To maximize profit, the firm hiresworkers up to the point where these two curves cross. Below this level of employ-ment, the value of the marginal product exceeds the wage, so hiring anotherworker would increase profit. Above this level of employment, the value of themarginal product is less than the wage, so the marginal worker is unprofitable.Thus, a competitive, profit-maximizing firm hires workers up to the point where the valueof the marginal product of labor equals the wage.Having explained the profit-maximizing hiring strategy for a competitivefirm, we can now offer a theory of labor demand. Recall that a firm’s labor demandcurve tells us the quantity of labor that a firm demands at any given wage. Wehave just seen in Figure 18-3 that the firm makes that decision by choosing thequantity of labor at which the value of the marginal product equals the wage. As aresult, the value-of-marginal-product curve is the labor demand curve for a competitive,profit-maximizing firm.CHAP TER 18 T HE MARKE TS FOR THE FACTORS OF P RODUC TION 403F Y IInput Demandand OutputSupply: TwoSides of theSame CoinW H AT CA USE S TH E L ABO R D EM AN D CU R VE TO SH IFT?We now understand the labor demand curve: It is nothing more than a reflectionof the value of marginal product of labor. W ith this insight in mind, let’s considera few of the things that might cause the labor demand curve to shift.Th e Ou tp u t P ri c e The value of the marginal product is marginal producttimes the price of the firm’s output. Thus, when the output price changes, thevalue of the marginal product changes, and the labor demand curve shifts. An in-crease in the price of apples, for instance, raises the value of the marginal productof each worker that picks apples and, therefore, increases labor demand from thefirms that supply apples. Conversely, a decrease in the price of apples reduces thevalue of the marginal product and decreases labor demand.Te c h nol o gic a l Ch a ng e Between 1968 and 1998, the amount of outputa typical U.S. worker produced in an hour rose by 57 percent. Why? The most404P A R T SIX THE ECONOM ICS OF L ABOR MARK E TSimportant reason is technological progress: Scientists and engineers are constantlyfiguring out new and better ways of doing things. This has profound implications for the labor market. Technological advance raises the marginal product of labor, which in turn increases the demand for labor. Such technological advance explains persistently rising employment in face of rising wages: Even though wages (ad- justed for inflation) increased by 62 percent over these three decades, firms nonetheless increased by 72 percent the number of workers they employed.Th e Su p p ly o f O th e r Fac to r s The quantity available of one factor ofproduction can affect the marginal product of other factors. A fall in the supply of ladders, for instance, will reduce the marginal product of apple pickers and thus the demand for apple pickers. We consider this linkage among the factors of pro- duction more fully later in the chapter.Q UI C K Q UI Z : Define marginal product of labor and value of the marginal product of labor . ◆ Describe how a competitive, profit-maximizing firm decides how many workers to hire.Having analyzed labor demand in detail, let’s turn to the other side of the market and consider labor supply. A formal model of labor supply is included in Chapter 21, where we develop the theory of household decisionmaking. Here we discuss briefly and informally the decisions that lie behind the labor supply curve.TH E TR ADE O F F BE TWE EN WO R K A ND L E ISU REOne of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. Probably no tradeoff is more obvious or more important in a person’s life than the tradeoff between work and leisure. The more hours you spend working, the fewer hours you have to watch TV, have dinner with friends, or pursue your favorite hobby. The tradeoff between labor and leisure lies behind the labor supply curve.Another one of the Ten Principles of Economics is that the cost of something is what you give up to get it. What do you give up to get an hour of leisure? You give up an hour of work, which in turn means an hour of wages. Thus, if your wage is $15 per hour, the opportunity cost of an hour of leisure is $15. And when you get a raise to $20 per hour, the opportunity cost of enjoying leisure goes up.The labor supply curve reflects how workers ’ decisions about the labor –leisure tradeoff respond to a change in that opportunity cost. An upward-sloping labor supply curve means that an increase in the wage induces workers to increase the quantity of labor they supply. Because time is limited, more hours of work means that workers are enjoying less leisure. That is, workers respond to the increase in the opportunity cost of leisure by taking less of it.It is worth noting that the labor supply curve need not be upward sloping. Imagine you got that raise from $15 to $20 per hour. The opportunity cost ofCHAP TER 18 T HE MARKE TS FOR THE FACTORS OF P RODUC TION 405 leisure is now greater, but you are also richer than you were before. You mightdecide that with your extra wealth you can now afford to enjoy more leisure;in this case, your labor supply curve would slope backwards. In Chapter 21, wediscuss this possibility in terms of conflicting effects on your labor-supply deci-sion (called income and substitution effects). For now, we ignore the possibility ofbackward-sloping labor supply and assume that the labor supply curve is upwardsloping.W H AT CA USE S TH E L ABO R S U PP L Y CUR VE TO SH IFT?The labor supply curve shifts whenever people change the amount they want towork at a given wage. Let’s now consider some of the events that might cause sucha shift.Ch a nge s i n Tas te s In 1950, 34 percent of women were employed at paidjobs or looking for work. In 1998, the number had risen to 60 percent. There are, ofcourse, many explanations for this development, but one of them is changingtastes, or attitudes toward work. A generation or two ago, it was the norm forwomen to stay at home while raising children. Today, family sizes are smaller, andmore mothers choose to work. The result is an increase in the supply of labor.Ch a nge s i n A l te r na tiv e O pp o r tu ni tie s The supply of labor in anyone labor market depends on the opportunities available in other labor markets. Ifthe wage earned by pear pickers suddenly rises, some apple pickers may choose toswitch occupations. The supply of labor in the market for apple pickers falls.Immi gra ti o n Movements of workers from region to region, or country tocountry, is an obvious and often important source of shifts in labor supply. Whenimmigrants come to the United States, for instance, the supply of labor in theUnited States increases and the supply of labor in the immigrants’ home countriescontracts. In fact, much of the policy debate about immigration centers on its effecton labor supply and, thereby, equilibrium in the labor market.Q UI C K Q UI Z: Who has a greater opportunity cost of enjoying leisure—ajanitor or a brain surgeon? Explain. Can this help explain why doctors worksuch long hours?So far we have established two facts about how wages are determined in compet-itive labor markets:◆The wage adjusts to balance the supply and demand for labor.◆The wage equals the value of the marginal product of labor.406 P A R T SIX THE ECONOM ICS OF L ABOR MARK E TSAt first, it might seem surprising that the wage can do both these things at once. Infact, there is no real puzzle here, but understanding why there is no puzzle is animportant step to understanding wage determination.Figure 18-4 shows the labor market in equilibrium. The wage and the quantityof labor have adjusted to balance supply and demand. When the market is in thisequilibrium, each firm has bought as much labor as it finds profitable at the equi-librium wage. That is, each firm has followed the rule for profit maximization: Ithas hired workers until the value of the marginal product equals the wage. Hence,the wage must equal the value of marginal product of labor once it has broughtsupply and demand into equilibrium.This brings us to an important lesson: Any event that changes the supply or de-mand for labor must change the equilibrium wage and the value of the marginal product bythe same amount, because these must always be equal. To see how this works, let’s con-sider some events that shift these curves.S HIFTS IN L AB OR S UP P L YSuppose that immigration increases the number of workers willing to pick apples.As Figure 18-5 shows, the supply of labor shifts to the right from S1 to S2. At theinitial wage W1 , the quantity of labor supplied now exceeds the quantity de-manded. This surplus of labor puts downward pressure on the wage of apple pick-ers, and the fall in the wage from W1 to W2 in turn makes it profitable for firmsto hire more workers. As the number of workers employed in each appleorchard rises, the marginal product of a worker falls, and so does the value of themarginal product. In the new equilibrium, both the wage and the value of themarginal product of labor are lower than they were before the influx of newworkers.CHAPTER 18T H E M A R K E T S F O R T H E FA C T O R S O F P R O D U C T I O N407Fi gur e 18-5Wage (price of labor) Supply, S1 S2 1. An increase in labor supply . . .W1 W2 2. . . . reduces the wage . . . DemandA S HIFT IN L ABOR S UPPLY. When labor supply increases from S1 to S2 , perhaps because of an immigration of new workers, the equilibrium wage falls from W1 to W2 . At this lower wage, firms hire more labor, so employment rises from L1 to L2. The change in the wage reflects a change in the value of the marginal product of labor: With more workers, the added output from an extra worker is smaller.0L1Quantity of Labor 3. . . . and raises employment. L2An episode from Israel illustrates how a shift in labor supply can alter the equilibrium in a labor market. During most of the 1980s, many thousands of Palestinians regularly commuted from their homes in the Israeli-occupied West Bank and Gaza Strip to jobs in Israel, primarily in the construction and agriculture industries. In 1988, however, political unrest in these occupied areas induced the Israeli government to take steps that, as a by-product, reduced this supply of workers. Curfews were imposed, work permits were checked more thoroughly, and a ban on overnight stays of Palestinians in Israel was enforced more rigorously. The economic impact of these steps was exactly as theory predicts: The number of Palestinians with jobs in Israel fell by half, while those who continued to work in Israel enjoyed wage increases of about 50 percent. With a reduced number of Palestinian workers in Israel, the value of the marginal product of the remaining workers was much higher.SHIFTS IN LABOR DEMANDNow suppose that an increase in the popularity of apples causes their price to rise. This price increase does not change the marginal product of labor for any given number of workers, but it does raise the value of the marginal product. With a higher price of apples, hiring more apple pickers is now profitable. As Figure 18-6 shows, when the demand for labor shifts to the right from D1 to D2 , the equilib- rium wage rises from W1 to W2 , and equilibrium employment rises from L1 to L2. Once again, the wage and the value of the marginal product of labor move together. This analysis shows that prosperity for firms in an industry is often linked to prosperity for workers in that industry. When the price of apples rises, apple408PA R T S I XTHE ECONOMICS OF LABOR MA RK E TSFigur e 18-6When labor demand increases from D1 to D2 , perhaps because of an increase in the price of the firms’ output, the equilibrium wage rises from W1 to W2 , and employment rises from L1 to L2. Again, the change in the wage reflects a change in the value of the marginal product of labor: added output from an extraDemand, D1 0 L1 L2 3. . . . and increases employment. Quantity of Labor (price of labor) SupplyW2 1. An increase in labor demand . . . W1 2. . . . increases the wage . . .D2producers make greater profit, and apple pickers earn higher wages. When the price of apples falls, apple producers earn smaller profit, and apple pickers earn lower wages. This lesson is well known to workers in industries with highly volatile prices. Workers in oil fields, for instance, know from experience that their earnings are closely linked to the world price of crude oil. From these examples, you should now have a good understanding of how wages are set in competitive labor markets. Labor supply and labor demand together determine the equilibrium wage, and shifts in the supply or demand curve for labor cause the equilibrium wage to change. At the same time, profit maximization by the firms that demand labor ensures that the equilibrium wage always equals the value of the marginal product of labor. CASE STUDYPRODUCTIVITY AND WAGESOne of the Ten Principles of Economics in Chapter 1 is that our standard of living depends on our ability to produce goods and services. We can now see how this principle works in the market for labor. In particular, our analysis of labor demand shows that wages equal productivity as measured by the value of the marginal product of labor. Put simply, highly productive workers are highly paid, and less productive workers are less highly paid. This lesson is key to understanding why workers today are better off than workers in previous generations. Table 18-2 presents some data on growth in productivity and growth in wages (adjusted for inflation). From 1959 to 1997, productivity as measured by output per hour of work grew about 1.8 percent per year; at this rate, productivity doubles about every 40 years. Over this period, wages grew at a similar rate of 1.7 percent per year.CHAPTER 18T H E M A R K E T S F O R T H E FA C T O R S O F P R O D U C T I O N409Ta b l e 1 8 - 2TIME PERIOD 1959–1997 1959–1973 1973–1997OFGROWTH RATE PRODUCTIVITY 1.8 2.9 1.1OFGROWTH RATE REAL WAGES 1.7 2.9 1.0P ROD UC TIVITY AN D WAGE G ROWTH IN THE U NITED S TATESSOURCE: Economic Report of the President 1999, table B-49, p. 384. Growth in productivity is measured here as the annualized rate of change in output per hour in the nonfarm business sector. Growth in real wages is measured as the annualized change in compensation per hour in the nonfarm business sector divided by the implicit price deflator for that sector. These productivity data measure average productivity—the quantity of output divided by the quantity of labor—rather than marginal productivity, but average and marginal productivity are thought to move closely together.Table 18-2 also shows that, beginning around 1973, growth in productivity slowed from 2.9 to 1.1 percent per year. This 1.8 percentage-point slowdown in productivity coincided with a slowdown in wage growth of 1.9 percentage points. Because of this productivity slowdown, workers in the 1980s and 1990s did not experience the same rapid growth in living standards that their parents enjoyed. A slowdown of 1.8 percentage points might not seem large, but accumulated over many years, even a small change in a growth rate is significant. If productivity and wages had grown at the same rate since 1973 as they did previously, workers’ earnings would now be about 50 percent higher than they are. The link between productivity and wages also sheds light on international experience. Table 18-3 presents some data on productivity growth and wage growth for a representative group of countries, ranked in order of their productivity growth. Although these international data are far from precise, a close link between the two variables is apparent. In South Korea, Hong Kong, and Singapore, productivity has grown rapidly, and so have wages. In Mexico, Argentina, and Iran, productivity has fallen, and so have wages. The United States falls about in the middle of the distribution: By international standards, U.S. productivity growth and wage growth have been neither exceptionally bad nor exceptionally good. What causes productivity and wages to vary so much over time and across countries? A complete answer to this question requires an analysis of long-run economic growth, a topic beyond the scope of this chapter. We can, however, briefly note three key determinants of productivity: ◆ Physical capital: When workers work with a larger quantity of equipment and structures, they produce more. ◆ Human capital: When workers are more educated, they produce more. ◆ Technological knowledge: When workers have access to more sophisticated technologies, they produce more. Physical capital, human capital, and technological knowledge are the ultimate sources of most of the differences in productivity, wages, and standards of living.。
