Chapter 11: Labor Markets

LEARNING OBJECTIVES
The steps to achieve the learning objectives include reading sections from your textbook and the
causation chain game, which is available directly on the Tucker web site. The steps also include
references to Ask the Instructor Video Clips, the Graphing Workshop available through
CourseMate on the Tucker website.
#1 - Explain how the demand and supply curves for labor determine the wage rate in a perfectly
competitive labor market.
Step 1

Read the section in your textbook titled The Labor Market under Perfect Competition.

*Step 2

Watch the Graphing Workshop See It! tutorial titled Demand Labor. Study the
derivation of the marginal revenue curve (MRP).

Step 3

Create a new graph at the Graphing Workshop Try It! exercise titled Demand for
Labor. This exercise illustrates how to compute the demand for labor curve (marginal
revenue product) from a production function for a small perfectly competitive restaurant.

Step 4

Read the Graphing Workshop Grasp It! exercise titled Demand for Labor. This
exercise uses a slider bar to demonstrate that for a perfectly competitive firm the price of
labor is fixed.

Step 5

Read the Graphing Workshop Grasp It! exercise titled Competitive Labor Market.
This exercise uses a slider bar to demonstrate the effects of changes in labor demand,
labor supply or both on the hourly wage.

Step 6

Create a new graph at the Graphing Workshop Try It! exercise titled Competitive
Labor Market. This exercise illustrates how an increase in the demand curve for
petroleum-related products affects the wage rate for entry level petroleum engineers in
the United States.

Step 7

Play the Causation Chains Game titled The Market Supply Curve of Labor.

Step 8

Listen to the Ask the Instructor Video Clip titled How Would a Zero-Radius Lawn
Mower Affect Your Productivity? You will learn to apply the concept of marginal
revenue product (MRP) to mowing a lawn.

Step 9

Listen to the Ask the Instructor Video Clip titled Whats the Best Thing Workers Can
Do to Increase Their Value? You will learn the importance of marginal revenue product
(MRP).

Step 10

Listen to the Ask the Instructor Video Clip titled Was Going to College Such a Good
Idea? You will learn that education is an investment in human capital.

The Result

By following these steps, you have learned the relationship between a production
function, marginal revenue product (MRP), and the demand for labor. In a perfectly
competitive labor market, the wage rate is determined by the intersection of the demand
for labor and supply of labor curves, and a single firm is a wage taker facing a
horizontal supply curve.

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#2 - Explain how labor unions can influence the wage rate.

Step 1

Read the sections in your textbook titled Labor Unions and Union Membership
around the World.

Step 2

Play the Causation Chains Game titled A Union Causes an Increase in the Demand
Curve for Labor.

Step 3

Play the Causation Chains Game titled A Union Causes a Decrease in the Supply
Curve of Labor.

Step 4

Listen to the Ask the Instructor Video Clip titled Why Do Professions Try to Limit
Entry? You will learn that most professions support laws that increase their earnings.

The Result

By following these steps, you have learned that unions can increase the demand curve for
labor and decrease the supply curve of labor in order to increase the wage rate.

#3 - Compare the outcome on wages and the quantity of labor employed between a competitive and
monopsonistic labor market.
Step 1

Read the section in your textbook titled Employer Power.

*Step 2

Watch the Graphing Workshop See It! tutorial titled Competitive Labor Market.
Study the supply and demand condition in a competitive labor market.

Step 3

Read the EconDebate article titled Does an Increase in the Minimum Wage Result in a
High Unemployment Rate? This article explains the difference between the perfectly
competitive and monopsony labor markets.

The Result

By following the steps, you have learned that the monopsonist hires workers only by
raising the wage rate for all workers and therefore it hires workers until the marginal
factor cost (MFC) equals the labor demand curve (MRP). As a result, a monopsonist hires
fewer workers and pays a lower wage than a firm in a competitive labor market.

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