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Summary Macroeconomics (Labor Market)
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These are summary notes that cover the labor market in macroeconomics 1
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Labor market• In this unit, we describe how the labour market works.
• We will model the labour market of an entire economy. This determines the unemp
the population as a whole.
• In reality production is affected by a number of things, but here we consider the sim
in which the only input to production is labour. Thus the cost of production is the w
Profits are determined by just three things:
• The nominal wage - the literal amount of money you get paid per hour or by salary
adjusted for inflation)
• The price at which the firm sells its goods
• The average output produced by a worker in an hour
, Labor market
• In order to motivate employees to work hard and well, firms must set the wage suff
high such that the value of being employed exceeds the value of the next best alter
• If the employment level in the economy is high, people will need a higher wage to w
• When setting the price of the good they sell, firms face a trade-off between selling m
goods and setting a higher price, due to the demand curve they face.
• To determine the price to set, the firm finds the mark-up over their production cost
balances the gains from a higher price against the losses from lower sales so as to m
profits.
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