Calculate the labor supply and demand curves. Describe the short-term link between labor and output from a classical perspective.
Derive the labour demand and labour supply curves. Explain the relationship of labour with output in the short run as per classical view.
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Derivation of Labor Demand and Supply Curves
In classical economics, the labor market is analyzed through the labor demand and supply curves, which determine the equilibrium wage and employment level.
1. Labor Demand Curve
The labor demand curve is derived from the marginal productivity of labor. It is downward sloping, indicating that as wages decrease, firms are willing to hire more labor.
2. Labor Supply Curve
The labor supply curve is typically upward sloping, reflecting that as wages increase, more individuals are willing to work or offer more hours of labor.
3. Short-Run Relationship of Labor with Output: Classical View
In the classical view, the short-run relationship between labor and output is characterized by the production function and the concept of diminishing marginal returns.
Conclusion
In classical economics, the labor demand curve is derived from the diminishing marginal productivity of labor, while the labor supply curve is based on worker responses to wage changes. The interaction of these curves determines the equilibrium wage and employment level. In the short run, the relationship between labor and output is governed by the law of diminishing marginal returns, where additional labor contributes less to output when other factors are held constant.