Chapter 18

In large part, this chapter seemed to be a clever repackaging of different ideas that we've already seen throughout the year. Specifically, this chapter analyzes the market for labor, and Mankiw states that the main differentiation between this chapter and the chapters that has preceded it, is that the demand for factors of production is derived demand. That means that the demand for a factor of production, in the biggest case labor, is determined by its decision to supply a good in another market. One thing that I thought was interesting is that firms hire labor until the marginal profit is 0. This allows me to make an easy comparison to a profit maximizing firms decision to produce where price is equal to marginal cost. In this case, price multiplied by the value of the marginal product equals wage, and so wage divided by the value of the marginal product equals price, or P=MC. That link to something that we've already learned in the past helped me to better understand this chapter in context. I also was interested in learning about the different factors that shifted the labor supply or the labor demand curves. A big factor in the markets is technology, which can take two forms. Either it can be labor-augmenting, which raises the marginal product of labor and increases its demand, or labor-saving, which reduces the marginal product of labor and decreases demand. Overall, I thought this chapter was pretty easy and would rate it a 1/3 in terms of difficulty.