![PHASE I [INCREASING MARGINAL RETURNS]
When a producer decides to higher an additional unit of
worker as a result the number of items produced per worker
per unit increases.
The producer is thus enjoying increasing returns.
This is because as the production has become more
efficient as each work specializes in a production task &
makes effective use of producers capital resources.](https://image.slidesharecdn.com/presentationonlabor4-230109161850-6a4184a3/85/presentation_on_labor_4-ppt-8-320.jpg)
![PHASE II[DIMNISHING MARGINAL RETURNS]
• If a producer continues to add a worker the total amount of
production may continue to increase but the per worker
production per unit of time will decrease . This is refered to as
DIMNISHING MARGINAL RETURNS .
• As each worker is competing for the use of the available
resources as resources are limited , therefore efficiency
decreases as more worker utilize them.](https://image.slidesharecdn.com/presentationonlabor4-230109161850-6a4184a3/85/presentation_on_labor_4-ppt-9-320.jpg)
![PHASE III[ NEGATIVE MARGINAL RETURNS]
• Eventually if a producer hiers enough additional workers
production can actually decrease. This is known as NEGATIVE
RETURN.
• This occurs when the number of workers trying to utilize the
available resources actually disrupts the production process &
severly impacts production process.](https://image.slidesharecdn.com/presentationonlabor4-230109161850-6a4184a3/85/presentation_on_labor_4-ppt-10-320.jpg)
presentation_on_labor_4.ppt
- 1. AGGREGATE SUPPLY AND DEMAND FUNCTION AND SUPPLY FUNCTION OF LABOUR
- 2. AGGREGATE SUPPLY In economics, aggregate supply (AS) or domestic final supply (DFS) is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is the total amount of goods and services that firms are willing and able to sell at a given price level in an economy.
- 3. COMPONENTS OF AGGREGATE SUPPLY Consumer goods Private consumer goods and services, such as motor vehicles, computers, clothes and entertainment, are supplied by the private sector, and consumed by households. For a developed economy, this is the single largest component of aggregate supply. Capital goods Capital goods, such as machinery, equipment, and plant, are supplied to other firms. These investment goods are significant in that their use adds to capacity, and increases the economy’s ability to supply private consumer goods in the future.
- 4. Public and merit goods Goods and services produced by private firms for use by central or local government, such as education and healthcare are also a significant component of aggregate supply. Many private firms such as those in construction, IT and pharmaceuticals, rely on contracts to supply to the public sector. Traded goods Goods and services for export, such as chemicals, entertainment, and financial services are also a key component of aggregate supply.
- 5. The Aggregate Supply curve The simple law of supply suggests that firms will, in general, plan to produce more output at higher price levels. At higher price levels across the economy firms expect that they can sell their final products at higher prices, and there will be a positive relationship between the price level and aggregate supply.
- 6. CONTINUED.. Any increase in input prices (costs) which may follow is assumed to lag behind increases in the general price level. Because of this firms expect that they will benefit - at least in the short run - from a rise in the price level.
- 7. DEFINITION OF MPL Labor or labor force is the number of workers at a producers facility , these laborers utilise capital resources to produce a product as without labor producers cannot produce. But the question generally arises that how much labor is required. Producers must determine the most efficient number of workers to meet their product need. This is thus determined by analyzing the marginal product of labour . This is the amount of change in production produced by each additional worker . The change can thus take three different forms:- PHASE I PHASE II PHASE II
- 8. PHASE I [INCREASING MARGINAL RETURNS] When a producer decides to higher an additional unit of worker as a result the number of items produced per worker per unit increases. The producer is thus enjoying increasing returns. This is because as the production has become more efficient as each work specializes in a production task & makes effective use of producers capital resources.
- 9. PHASE II[DIMNISHING MARGINAL RETURNS] • If a producer continues to add a worker the total amount of production may continue to increase but the per worker production per unit of time will decrease . This is refered to as DIMNISHING MARGINAL RETURNS . • As each worker is competing for the use of the available resources as resources are limited , therefore efficiency decreases as more worker utilize them.
- 10. PHASE III[ NEGATIVE MARGINAL RETURNS] • Eventually if a producer hiers enough additional workers production can actually decrease. This is known as NEGATIVE RETURN. • This occurs when the number of workers trying to utilize the available resources actually disrupts the production process & severly impacts production process.
- 11. DEMAND FUNCTION OF LABOUR In economics labor demand refers to the number of hours of hiring that employer who is willing to work with respect to several extraneous variable, that are the wage rate , the unit cost of capital and the market determined selling price of his output. Thus the function specifying the qty of labour that would be demanded at any of various possible values of these exogenous variables is called as the labour demand function.
- 12. DEMAND FUNCTION OF A COMPETITIVE FIRM It can thus be determined in a competitive firm is through profit maximisation problem. Where:- P= Extraneous selling price of the output being produced. Q= Qty of the output being produced in a month W= Hourly wage rate paid to the worker L= Number of workers hired(qty of labour demanded per month) R= Rate of rent & cost of capital using a machine for an hour k= Number of hours machine is being used
- 13. Continued… • Which specifies the amount of output that can be produced using any of various combination of labour and capital. Thus this optimization problem involves simultaneous involvement of labour and capital in resultant output.
- 14. IF THE FIRM IS MONOPOLIST • If the firm is monopolist, its optimization problem is different because it cannot take its selling price as given: the more it produces, the lower will be the price it can obtain for each unit of output, according to the market the demand curve for the product. So its profit-maximization problem where Q(p) is the market demand function for the product. The constraint equates the amount that can be sold to the amount produced. Here labor demand, capital demand, and the selling price are the choice variables, giving rise to the input demand functions and the pricing functions. There is no output supply for a monopolist firm, because the supply function pre supposes the existence of exogeneous variables.
- 15. REASONS FOR SHIFT IN DEMAND CURVE OF LABOUR • Causes of shifts in labor demand curve • The labor demand curve shows the value of the marginal product of labor • as a function of quantity of labor hired. Using this fact, it can be seen that the • following changes shift the labor demand curve: • The output price. When output price rises, the labor demand curve shifts • to the right { more labor is demanded at each wage. When output price falls, • less labor is demanded at each wage. • Technological change causes the MPL function to change,
- 16. DEMAND CURVE • The labor demand curve shows shows the value of the marginal product of labor as a function of quantity of labor hired. Using this fact, it can be seen that the following changes shift the labor demand curve: ... When output price rises, the labor demand curve shifts to the right – more labor is demanded at each wage rate
- 17. Supply Function of Labour • The labour supply is the total hours (adjusted for intensity of effort) that workers wish to work at a given real wage rate. It is frequently represented graphically by a labour supply curve, which shows hypothetical wage rates plotted vertically and the amount of labour that an individual or group of individuals is willing to supply at that wage rate plotted horizontally.
- 18. ASSUMPTIONS • Workers choose their hours. • There are no contractual obligations to work a certain number of hours. • Workers are utility-maximising agents. • Work provides a disutility, which must be compensated for by paying wages. • Unpaid leisure time is a "normal” goods • The labour market is competitive, and both firms and workers are price-takers.
- 20. Why does the labour supply curve bend backward? The backward-bending labor supply curve. This supply curve shows how the change in real wage rates affects the amount of hours worked by employees. Referring to the graph, if real wages were to increase from W1 to W2 then the worker will obtain a greater utility, due to their higher income.
- 21. Why does the labour supply curve slope up? • If the substitution effect is stronger than the income effect then the labour supply curve will be upward sloping; if beyond a certain wage rate the income effect is stronger than the substitution effect, then the labour supply curve is backward bending.
- 22. INVERTED ‘S’ SHAPE SUPPLY CURVE At very low wage levels, near the subsistence level, the supply curve may also be curved backwards for a completely different reason. That effect creates an "inverted S" or "backward S" shape for different reasons.
- 23. REASONS ARE: 1.)Because families face some minimum level of income needed to meet their subsistence requirements, lowering wages increases the amount of labour-time offered for sale.
- 24. 2.) A rise in wages can cause a decrease in the amount of labour-time offered for sale, and individuals take advantage of the higher wage to spend time on needed self- or family-maintenance activities.