The document summarizes key concepts related to labor supply and demand. It discusses how individuals supply more labor as wages increase due to substitution and income effects. It also discusses how firms demand more labor as wages decrease due to marginal revenue product. The document concludes by discussing how market equilibrium is reached through the intersection of the labor supply and demand curves and factors like minimum wages that can shift this equilibrium.

1. The Labor Market Chapter 15

5. The Supply of Labor People supply more Labor when wages rise w 1 w 2 B A q 1 q 2 Quantity of Labor (hours per week) Wage Rate (dollars per hour) Labor supply 0

9. The Backward-Bending Supply Curve Substitution effects dominate Income effects dominate Quantity of Labor Supplied (hours per week) Wage Rate (dollars per hour) 0

20. The Demand for Labor More workers are sought at lower wages Demand for labor 0 L 1 L 2 W 2 W 1 Wage Rate (dollars per hour) Quantity of Labor (hours per month) A B

26. The Law of Diminishing Returns

27. The Law of Diminishing Returns Number of Pickers (per hour) 0 1 2 3 4 5 6 7 8 9 10 0 2 4 6 8 10 12 14 16 18 20 22 Output of Strawberries (boxes per hour) Total output Marginal output (per picker) A B C D E F G H I b c d e f g h i – 4 – 2

29. Diminishing MRP

33. MRP = Firm’s Labor Demand 0 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 10 $11 Wage rate MRP A B C MARGINAL REVENUE PRODUCT (dollars per hour) QUANTITY OF LABOR (workers per hour) D

35. Incentives to Hire New wage rate Lower wages spur more hires Quantity of Labor Demanded (pickers per hour) Wage Rate (dollars per hour) 0 1 2 3 4 5 6 7 8 9 2 4 6 8 10 $12 MRP = demand Initial wage rate A B C G D

37. Incentives to Hire Higher productivity spurs more hires New demand curve D 2 F E Quantity of Labor Demanded (pickers per hour) Wage Rate (dollars per hour) 0 1 2 3 4 5 6 7 8 9 2 4 6 8 10 $12 Initial demand curve Initial wage rate D 1 C

43. Equilibrium Wage Labor supply confronting firm w e MRP of firm's labor q 0 Quantity of Labor (workers per time period) A competitive firm Quantity of Labor (workers per time period) Wage Rate (dollars per hour) Market demand Market supply The labor market w e

48. Minimum Wage Effects Market surplus Labor demand Labor supply Minimum wage Equilibrium wage rate New entrants who can't find jobs E w e q e Workers who keep jobs at higher wage Job losers w m Wage Rate (dollars per hour) 0 Quantity of Labor (hours per year) q d q s

54. Alternative Production Processes

62. The Labor Market End of Chapter 15