ECO 365 - Week 2 Discussion Question Answers
DQ 1: Why is the demand of labor a derived demand? Explain the shape of the supply of labor curve. What is the relationship between productivity and the wages earned by an employee? What are some factors that determine the level of your income?
The concept of derived demand occurs when the demand of product exists due to demand of another product. In this case, demand of a labor is a form of derived demand, because the amount of labor hired will depend on the demand for products by the firm. When demand for products is high, the firm will need to increase supply as such they will need more labor. When demand of the products is low, the firm will need to decrease supply so they will require less labor. The labor demand curve is negatively sloping because firms will decrease demand for labor should employee wages become too expensive. On the other hand, the relationship between wage and productivity is positive, the higher the amount of wages, the more incline the worker is to work. Some of the factors determining income will be the amount of available labor, working time, and also your personal negotiation with the company.
DQ 2: What is the law of diminishing marginal productivity? Give an example from your workplace of the law of diminishing marginal productivity? Might diminishing marginal productivity impact the costs?
The law of diminishing marginal productivity states that the amount of variable factor in the firm will come to a point when the additional input of a new employee (variable factor) will only to result in a fall in marginal product of the previous employee. In my workplace for example, having too many workers yet too few computers can result in decrease in marginal product. For example, given that we add the sixth worker into the office when there are only five computers around, the sixth worker will have very limited amount of things he can do due to resource constraints, this will bring...
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