Introduction to Economics Microeconomics The US Economy Llad Phillips 1 What Did We Learn from Malthus The Growing Population Gobbles Up the Surplus The Oligarchy Rules Economic Concepts demand for labor is the marginal product curve the supply of labor is the subsistence wage Llad Phillips 2 Demographic Externality The Malthusian Future Consequence Less Developed Countries Lag Consequence Political Instability Consequence Pressure on World Resources Llad Phillips 3 The Demographic Transition Death Rates Fall Before Birth Rates Llad Phillips 4 Births Inflow of New People Net Flow Population Stock of People Deaths Outflow of People Llad Phillips 5 Production Function Output B Total Product Curve World GDP Input World Population or number of workers Llad Phillips 6 The Malthusian Model Summary Applications of the model Earth as a limited resource too many people too few trees global warming Third World Underdeveloped Countries Llad Phillips too many people too few trees famine pestilence 7 What Did We Learn From Malthus Economic Concepts demand for labor is the marginal product curve the supply of labor is the subsistence wage Llad Phillips 8 Marginal Product Curve Demand for Labor Marginal Product Average Product of Labor of Workers Llad Phillips 9 Landowners Maximize the Surplus Total Output Total Real Wage Bill Total Output Rent Surplus of Workers Llad Phillips 10 Marginal Principle Set slope of wage bill equal to the slope of total product curve I e set real wage marginal product of labor Llad Phillips 11 Marginal Product Curve Demand for Labor Marginal Product Supply Curve of Labor SubsistenceWage Hires Llad Phillips of Workers 12 Marginal Product Curve Demand for Labor Marginal Product Surplus per worker Average Product of Labor of Workers Llad Phillips 13 Marginal Product Curve Demand for Labor Marginal Product Surplus per worker Area is the Rent Average Product of Labor of Workers Llad Phillips 14 Outline Lecture Twelve Economic Concepts from Lecture Eleven Diminishing Returns Marginal Product of Labor The Malthusian Model Summary Marxism The Wealth of Nations Llad Phillips 15 Economic Concepts from Your Reading Diminishing Returns Llad Phillips Chapter 2 Chapter 8 Chapter 22 16 Chapter Two Slide Show PRINCIPLE of Diminishing Returns Llad Phillips 17 Chapter Eight Figure 8 1 Total Product Curve Llad Phillips 18 Chapter 22 Figure 22 1 Relationship between Labor and Output with Capital Fixed Llad Phillips 19 Chapter 22 Slide Show The Demand for Labor To understand the demand for labor we use the marginal principle Marginal PRINCIPLE Increase the level of an activity if its marginal benefit exceeds its marginal cost but reduce the level if the marginal cost exceeds the marginal benefit If possible pick the level at which the marginal benefit equals the marginal cost Marginal benefit is the extra output that results when an additional unit of labor is hired Marginal cost is the real wage that a firm pays to hire an additional worker Llad Phillips 20 The Demand for Labor As long as the marginal benefit from an additional worker exceeds the marginal cost of that worker firms will continue to hire additional workers The demand for labor is downwardsloping As the real wage falls firms will hire more labor Llad Phillips 21 Economic Concepts Marginal product of labor Chapter 2 p 32 the change in output from one additional worker Chapter 8 p 166 Output increases at a decreasing rate meaning the marginal product of labor decreases Llad Phillips 22 Marxism Critique of Capitalism Llad Phillips 23 1836 Llad Phillips Karl Marx 1861 24 Marx s Dwelling 28 Dean Street Soho London Llad Phillips 25 Radical Chic Icon of the 60 s Llad Phillips 26 Karl Marx Das Kapital 1867 With industrialization capital becomes more important relative to land Labor Theory of Value With innovation capital replaces labor labor is the source of all value labor saving machines as capital replaces labor the source of value is being displaced profits fall Exploitation of labor displaced labor reserve army of unemployed Llad Phillips 27 Karl Marx s Capitalism Labor Capital displaces labor Output Capital Stock Technology is Labor Saving Llad Phillips 28 Karl Marx s Capitalism Labor Capital displaces labor Output Capital Stock Technology is Labor Saving Llad Phillips 29 Karl Marx s Capitalism Labor Capital displaces labor Output Capital Stock Technology is Labor Saving Llad Phillips 30 APL MPL APL MPL Demand for Labor Subsistence Real Wage Supply of Labor Reserve Army of the Unemployed Labor Input Llad Phillips 31 Marx Was Right About Labor Saving Capital and Technology Workers left the Farms for the Cities Workers Left Manufacturing for the Sevice Industries Llad Phillips 32 Marx Missed the Shift From One Kind of Employment to the Next Llad Phillips 33 Karl Marx Capitalists exploit labor the displacement of labor by labor saving machines creates reserve army of the unemployed technological unemployment excess supply of workers willing to work at a subsistence wage capitalists pocket the difference between the average product of labor APL and the marginal product of labor MPL as profit per employed worker Eventually the workers revolt Llad Phillips 34 Exploitation of Labor APL MPL APL MPL APL MPL Demand for Labor APL MPL p L Subsistence Real Wage Supply of Labor Reserve Army of the Unemployed Labor Input L Employed Workers Llad Phillips 35 Marx Exploitation of Working Class Note Ignoring Fixed Costs Profits Value of output wage Bill p Q w L Real Profits Output Wage Bill in real terms p Q w p L so real profits per worker equals p L Q L w p APL MPL Llad Phillips 36 APL MPL APL MPL Demand for Labor Subsistence Real Wage Supply of Labor Real Wage Bill Subsistence Wage L APL MPL p L S Reserve Army of the Unemployed Labor Input L Employed Workers Llad Phillips 37 APL MPL D APL Total Real Value of Output APL L Q Q L L Subsistence Real Wage S APL MPL p L S Reserve Army of D the Unemployed Labor Input L Employed Workers Llad Phillips 38 APL MPL D Total Real Value of Output APL L Q Q L L Subsistence Real Wage S Real Wage Bill APL APL MPL p L S Reserve Army of D the Unemployed Labor Input L Employed Workers Llad Phillips 39 Capitalist Exploitation of Workers Class Conflict APL MPL D Capitalists Real Profit Subsistence Real Wage S APL APL MPL p L S Reserve Army of D the Unemployed Labor Input L Employed Workers Llad Phillips 40 Class Conflict Karl Marx class conflict is economic conflict capitalists versus workers Thomas Malthus