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ECON 2A03 (2)
Chapter 5

Chapter 5 – Demand for labour in competitive labour markets.doc

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McMaster University
Arthur Sweetman

Chapter 5Demand for labour in competitive labour marketsThe general principles that determine the demand for any factor of production apply also to the demand for labourThe demand for factors is called a derived demandThe short run is defined as a period during which one or more factors of production referred to as fixed factors cannot be variedThe long run is defined as a period during which the firm can adjust all of its inputsoDuring both the short and long run the state of technical knowledge is assumed to be fixedoThe very long run refers to the period during which changes in technical knowledge can occurBy the demand for labour we mean the quantity of labour services the firm would choose to employ at each wageoThe desired quantity will depend on both the firms objectives and its constraintsThe firm is constrained byoThe demand condition in its product marketsoThe supply conditions in its factor marketsoAnd its production function which shows the maximum output attainable for various combinations of inputs given the existing state of technical knowledgeIn the short run the firm is more constrained by having one or more factors of production whose quantities are fixedThe theory of labour demand examines the quantity of labour services the firm desires to employ given the market determined wage rate or give n the labour supply function that the firm facesCategorizing the structure of product and labour marketsThe structure of the product market affects the firms derived demand for labourThe structure of the labour market affects the labour supply curve that the firm facesThe supply curve of labour to an individual firm shows the amount of a specific type of labour that the firm could employ at various wage ratesThe four main market structures are perfect competition monopolistic competition oligopoly monopolyThe four labour market structures are perfect competition monopsonistic competition oligopsony and monopsony
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