第五章 80 Neo-classic trade theory.ppt

* Prices, Wages, and Labor Allocation In each sector, profit-maximizing employers will demand labor up to the point where the value produced by an additional person-hour equals the cost of employing that hour. The demand curve for labor in the manufacturing sector can be written: MPLM ×PM = w The wage rate equals the value of the marginal product of labor in manufacturing. The demand curve for labor in the food sector can be written: MPLF ×PF = w The wage rate equals the value of the marginal product of labor in food. * The wage rate must be the same in both sectors, because of the assumption that labor is freely mobile between sectors. The wage rate is determined by the requirement that total labor demand equal total labor supply: LM + LF = L Prices, Wages, and Labor Allocation (cont.) * PM X MPLM (Demand curve for labor in manufacturing) PF X MPLF (Demand curve for labor in food) Wage rate, W Wage rate, W W1 1 L1M L1F Labor used in manufactures, LM Labor used in food, LF The Allocation of Labor * Distribution of income What happens to the allocation of labor and the distribution of income when the prices of food and manufactures change? Two cases: An equal proportional change in prices A change in relative prices * W1 1 PF increases 10% Wage rate, W Wage rate, W PF 1 X MPLF Labor used in manufactures, LM Labor used in food, LF 10% wage increase PM increases 10% PM 1 X MPLM W2 2 PF 2 X MPLF PM 2 X MPLM An Equal Proportional Increase in the Prices of Manufactures and Food * When both prices change in the same proportion, no real changes occur. The wage rate (w) rises in the same proportion as the prices, so real wages (i.e. the ratios of the wage rate to the prices of goods) are unaffected. The real incomes of capital owners and landowners also remain the same. An Equal Proportional Increase in the Prices of Manufactures and Food (cont.) * PF 1 X MPLF Wage rate, W Wage rate, W PM 1 X MPLM 2 W 2 Labor used in food, LF Labo