Class notes
ECON 352-Chapter 2 Notes
- Course
- ECON 352
- Institution
- University Of Southern California
ECON 352-Chapter 2 Notes
[Show more]
Seller
Follow
Content preview
Chapter 3 NotesProductivity, Output, and Employment
● Physical side of economic activities: real economic variables
○ Variables: production, real GDP, and unemployment
● Monetary side of economic activities: monetary activities that facilitate real economic
activities.
○ Variables: money, nominal GDP, nominal interest rate
● Normal growth rate of GDP = 3%
Short-Fun Production Function:
→ Y = F(N)
- GDP = Y
- N = labor
- K = capital
● The labor market decides the optimum N*
● The law of diminishing returns: applies to any physical activity
● Demand shifters for labor (micro):
○ Increase in productivity of labor
○ Increase in capital
● Supply of labor:
○ Individual utility maximizing choice of labor between income and leisure
○ Individual utility: U = f(Leisure, Income)
■ More leisure → less income
■ Less leisure → more income
○ Income effect: negative
, ■ Increase in wages → less working hours → reduces supply of labor
■ Decrease in wages → more working hours → raises supply of labor
○ Substitution effect: positive
■ Wage increases → leisure more expensive → more working hours
■ Wage decreases → leisure less expensive → less working hours
Labor Market
● Demand shifters (macro):
○ increase in productivity of labor
○ Increase in capital
● Supply shifters (macro):
○ Wealth
■ Increase in wealth → decrease supply of labor
○ Expectations of future wage
■ Increase in expectation → decrease supply of labor
○ Increase in working-age population
■ Increase in supply of labor
○ Increase in labor participation rate
■ Increase in supply of labor
Wages and employment
● Demand for labor:
● Rational behavior: benefit >/= cost
○ Corporate: MPL (marginal product of labor), wage
■ MPL > w → hire
■ MPL < w → fire
■ MPL = w → optimal
● Marginal Revenue Product of Labor (MRPL) or Value of Marginal Product of Labor
(VMPL) = P*MPL
○ VMPL > W Hire more labor
○ VMPL < W Fire labor
○ VMPL = W Profit-Maximizing, Equilibrium
Long-Run Production Function
→ Y = F(K, N)
- Y: output
- K: capital input
- N: labor input
● MPL/W > MPK/r : Hire more labor or reduce capital.
● MPL/W < MPK/r : Hire more capital or reduce labor.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lingtp6. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52928 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now