ECN 211 Lecture Notes - Lecture 7: Real Wages, Shortage, Demand Curve

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21 Sep 2015
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The labor market: households supply labor, firms demand labor, horizontal axis: number of workers, vertical axis: real hourly wage rate, if excess supply of labor. Competition among workers would drive the wage downward: if excess demand for labor, equilibrium total employment. Competition among firms would drive the wage upward. Economy achieves full employment on its own. Real wage: measured in the dollars of some base year, the amount of goods that workers can buy with an hour"s earnings. Labor demand curve: how many workers firms will want to hire at various real wage rates, downward sloping, as the wage rate increases, each firm in the economy will find. To maximize profit, it should employ fewer workers than before. When all firms behave this way together. A rise in the wage rate will decrease the quantity of labor demanded in the economy. The role of spending: total spending in a very simple economy, domestic households.

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