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September 04, 2007
The Classical Model
The Classical Model emphasizes the role of equilibrium in the supply and demand for labor. The other factor of production, capital, is taken to be fixed in the short run.
The demand for labor follows from profit maximizing behavior and the marginal product of labor.
The Simple Classical Model takes the supply of labor to be fixed. This diagram shows that we can, nonetheless, explain business cycles.
Adding an upward sloping supply of labor allows employment to vary.
We derived the upward sloping labor supply curve from a variation on the two goods - two prices diagram with leisure taking the place of one of the goods. We even speculated about the possibility of a backward-bending labor supply curve at high wage rates.
With the remaining time, we took a side trip to think about taxes and welfare programs.
Posted by bparke at September 4, 2007 11:40 PM