Labor Demand IN THE Long Run
The long-run demand curve for labor shows the relationship between the wage and the quantity of labor demanded over the long run, when the number of firms in the market can change and firms in the market can modify their production facilities. Although there are no diminishing returns in the long run, the market demand curve is still negatively sloped.
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Sub: Economics Labor Demand In The Long Run
Topic: Demand curve
The long-run demand curve for labor shows the relationship between the wage and the quantity of labor demanded over the long run, when the number of firms in the market can change and firms in the market can modify their production facilities. Although there are no diminishing returns in the long run, the market demand curve is still negatively sloped. As the wage increases, the quantity of labor demanded decreases for two reasons:
The output effect. An increase in the wage will increase the cost of producing balls, and firms will pass on at least part of the higher labor cost to their consumers: Prices will increase. According to the law of demand, firms will sell fewer balls at the higher price, so they will need less of all inputs, including labor.
The input-substitution effect. An increase in the wage will cause the firm to substitute other inputs for labor. At a wage of $4, it may not be sensible to use much machinery in the ball factory, but at a wage of $20, it may be sensible to mechanize the factory, using more machinery and fewer workers. This substitution of other inputs for labor decreases the labor input per unit of output.
There is less flexibility in the short run because firms cannot enter or leave the market and they cannot modify their production facilities. As a result, the demand for labor is less elastic in the short run. That means the short-run demand curve is steeper than the long-run demand curve. The inputsubstitution effect decreases the labor input per unit of output while the output effect decreases total output. The two effects operate in the same direction, so the market demand curve is negatively sloped. The notion of input substitution applies to other labor markets as well. For the most graphic examples of factor substitution, we can travel from a developed country, such as the United States,
www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics
Topic: Demand curve
Canada, France, Germany, or Japan, to a less-developed country in South America, Africa, or Asia. Wages are much lower in the less-developed countries, so production tends to be more labor intensive. In other words, labor is less costly relative to machinery and equipment, so labor is substituted for these other inputs. Here are some examples:
Mining. U.S. firms use huge earthmoving equipment to mine for minerals; firms in some lessdeveloped countries use thousands of workers digging by hand. Furniture. Firms in developed countries manufacture furniture with sophisticated machinery and equipment; firms in some less-developed countries make furniture by hand. Accounting. Accountants in developed countries use computers and sophisticated software programs; some accountants in less-developed countries use simple calculators and ledger paper.
www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics
Topic: Demand curve
For more details on Classof1 or customized academic assistance please feel free to write to us at [email protected] or call our toll-free number 1- 877- 252- 7763. The list of subject areas in which we offer academic assistance is as given below: 1. Accounting 23. Engineering 45. Mass Communication 2. Actuarial Science 3. Anatomy 4. Anthropology 5. Architecture 6. Astronomy 7. Biochemical Engineering 8. Biochemistry 9. Biology 10. Business Law 11. Business Management 12. Chemical Engineering 13. Chemistry 14. Civil Engineering 15. Classical Studies 16. Computer Science 17. Corporate Finance 18. Corporate Strategy 19. Cost Accounting 20. Earth Science 21. Economics 22. Electrical Engineering 24. English 25. Environmental Engineering 26. Environmental Science 27. Essay Writing 28. Finance 29. Financial Accounting 30. Gender Studies 31. Geography 32. Geology 33. HBS Case Study Analysis 34. History 35. Hospitality Management 36. Human Resource Management 37. Information Systems 38. International Economics 39. International Finance 40. Investment Portfolio Management 41. MS-Office 42. Macro Economics 43. Management Accounting 44. Marketing 46. Materials Engineering 47. Math 48. Mechanical Engineering 49. Medical Science 50. Micro Economics 51. Nursing 52. Operations Management 53. Philosophy 54. Physics 55. Physiology 56. Political Science 57. Psychology 58. Religious Studies 59. Rhetoric 60. Social Studies 61. Social Work 62. Sociology 63. Statistics 64. Taxation 65. Zoology
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*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
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www.classof1.com/homework-help/economics
Sub: Economics Labor Demand In The Long Run
Topic: Demand curve
The long-run demand curve for labor shows the relationship between the wage and the quantity of labor demanded over the long run, when the number of firms in the market can change and firms in the market can modify their production facilities. Although there are no diminishing returns in the long run, the market demand curve is still negatively sloped. As the wage increases, the quantity of labor demanded decreases for two reasons:
The output effect. An increase in the wage will increase the cost of producing balls, and firms will pass on at least part of the higher labor cost to their consumers: Prices will increase. According to the law of demand, firms will sell fewer balls at the higher price, so they will need less of all inputs, including labor.
The input-substitution effect. An increase in the wage will cause the firm to substitute other inputs for labor. At a wage of $4, it may not be sensible to use much machinery in the ball factory, but at a wage of $20, it may be sensible to mechanize the factory, using more machinery and fewer workers. This substitution of other inputs for labor decreases the labor input per unit of output.
There is less flexibility in the short run because firms cannot enter or leave the market and they cannot modify their production facilities. As a result, the demand for labor is less elastic in the short run. That means the short-run demand curve is steeper than the long-run demand curve. The inputsubstitution effect decreases the labor input per unit of output while the output effect decreases total output. The two effects operate in the same direction, so the market demand curve is negatively sloped. The notion of input substitution applies to other labor markets as well. For the most graphic examples of factor substitution, we can travel from a developed country, such as the United States,
www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics
Topic: Demand curve
Canada, France, Germany, or Japan, to a less-developed country in South America, Africa, or Asia. Wages are much lower in the less-developed countries, so production tends to be more labor intensive. In other words, labor is less costly relative to machinery and equipment, so labor is substituted for these other inputs. Here are some examples:
Mining. U.S. firms use huge earthmoving equipment to mine for minerals; firms in some lessdeveloped countries use thousands of workers digging by hand. Furniture. Firms in developed countries manufacture furniture with sophisticated machinery and equipment; firms in some less-developed countries make furniture by hand. Accounting. Accountants in developed countries use computers and sophisticated software programs; some accountants in less-developed countries use simple calculators and ledger paper.
www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics
Topic: Demand curve
For more details on Classof1 or customized academic assistance please feel free to write to us at [email protected] or call our toll-free number 1- 877- 252- 7763. The list of subject areas in which we offer academic assistance is as given below: 1. Accounting 23. Engineering 45. Mass Communication 2. Actuarial Science 3. Anatomy 4. Anthropology 5. Architecture 6. Astronomy 7. Biochemical Engineering 8. Biochemistry 9. Biology 10. Business Law 11. Business Management 12. Chemical Engineering 13. Chemistry 14. Civil Engineering 15. Classical Studies 16. Computer Science 17. Corporate Finance 18. Corporate Strategy 19. Cost Accounting 20. Earth Science 21. Economics 22. Electrical Engineering 24. English 25. Environmental Engineering 26. Environmental Science 27. Essay Writing 28. Finance 29. Financial Accounting 30. Gender Studies 31. Geography 32. Geology 33. HBS Case Study Analysis 34. History 35. Hospitality Management 36. Human Resource Management 37. Information Systems 38. International Economics 39. International Finance 40. Investment Portfolio Management 41. MS-Office 42. Macro Economics 43. Management Accounting 44. Marketing 46. Materials Engineering 47. Math 48. Mechanical Engineering 49. Medical Science 50. Micro Economics 51. Nursing 52. Operations Management 53. Philosophy 54. Physics 55. Physiology 56. Political Science 57. Psychology 58. Religious Studies 59. Rhetoric 60. Social Studies 61. Social Work 62. Sociology 63. Statistics 64. Taxation 65. Zoology
www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
