Principles of economics openstax chapter4

College Principles ofPhysics Economics Chapter TitleMarkets ChapterChapter Labor #and Financial PowerPoint Image Slideshow Labor market for nurses Product Market Participants: • • Households on the demand side Business firms in the supply side Labor Market Participants: • • Households on the supply side Business firms in the demand side The Labor Market Supply of labor: the hours of labor services workers want to provide at various wages Demand for labor: the labor of labor services firms want to hire at various wages W0 = equilibrium wage L0 = equilibrium employment Market for labor resources In the labor market, there is a growing demand for nursing professionals Nursing jobs are expected to grow 26% in 2010-2020 The average annual salary of $64,490 in 2010 is also going to rise Labor market for nurses • With the demand for nurses intersecting the supply of nurses, 35,000 nurses are hired, each at $70,000 a year • At a salary of $75,000, 38,000 are available for work But, only 33,000 have jobs So, there is an excess supply or surplus of 5,000 nurses • At a salary of $60,000, 27,000 are available for work But, 40,000 nurses are needed So, there is an excess demand or shortage of 13,000 nurses Labor market for nurses Factors causing demand to increase • Education and Training - Nurses become more productive and make higher salaries • Technological Advancement – New methods and equipment complementing nursing skills to jobs safer, faster, and better • Government Regulations – Regulations making it necessary for nurses to take more responsibility and perform a larger variety of tasks • Price and Availability of other Inputs – When medical technology becomes available and affordable to use in hospitals and doctors’ offices Labor market response In 2010, the median salary for nurses was $64,690 As demand for nursing services increases, more nurses are employed at higher salaries Now, assume a larger salary motivates some nurses to retire early (ceteris paribus) As a result, the supply of nurses decline This market response will result in even higher salaries for nurses, but an uncertain outcome in the number of nurses employed More nurses are employed if the demand increase is larger than the supply decrease Labor market response Labor Market response Effects technological change Figure (a): The demand for low-skill labor declines when machines can the job previously done by these workers Labor and machines are substitutes Figure (b): New technology can also increase the demand for high-skill labor in fields such as information technology and network administration Labor and machines are complementary Shift in demand for labor Effects of Minimum wage Equilibrium: Wage = $10/hour and Employment = 1,200 Minimum Wage = $12/hour leads to a surplus of labor Quantity Supplied = 1,600 Quantity Demanded = 700 Unemployment = 1,600 – 700 = 900 Market for financial capital • With the demand for loanable funds intersecting the supply of loanable funds at interest rate of 15%, $600 billion are borrowed/lent • At an interest rate of 21%, $750 billion are available for lending But, only $480 billion are borrowed So, there is an excess supply or surplus of $270 billion • At an interest rate of 13%, $510 billion are available for lending But, $700 billion are needed to borrow So, there is an excess demand or shortage of $190 billion Market for financial capital Market for financial capital Demand: Amount of money wanted to borrow Supply: Amount of money available to lend Demand = Supply at E0 Equilibrium Rate of Return = R0 Equilibrium Financial Capital = Q Factors causing supply to decrease • Poor economic conditions: prolonged recession, rapid inflation • Uncertainty about rising federal deficit and accumulating national debt • Diminished optimism about future financial conditions • Corruption and socio-political instability Shift in supply of capital A decline in the supply of loanable funds, causes the interest rate to rise and amount of funds borrowed/lent to fall Interest rate regulation Imposing a ceiling on the interest rate at R c < R0, will cause an excess demand or shortage of financial capital  ... in the demand side The Labor Market Supply of labor: the hours of labor services workers want to provide at various wages Demand for labor: the labor of labor services firms want to hire at various... supply of nurses, 35,000 nurses are hired, each at $70,000 a year • At a salary of $75,000, 38,000 are available for work But, only 33,000 have jobs So, there is an excess supply or surplus of 5,000... perform a larger variety of tasks • Price and Availability of other Inputs – When medical technology becomes available and affordable to use in hospitals and doctors’ offices Labor market response