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Abstract

The paper published below was prepared by Taylor Ostrander for Frank Knight’s course, Economic Theory, Economics 301, during the Fall 1933 quarter.

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Documents from F. Taylor Ostrander
Type: Book
ISBN: 978-0-76231-165-1

Abstract

“Economics is a Serious Subject.” Edwin Cannan.

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Wisconsin, Labor, Income, and Institutions: Contributions from Commons and Bronfenbrenner
Type: Book
ISBN: 978-1-78052-010-0

Article
Publication date: 27 May 2014

Joseph G. Eisenhauer

Some labor supply curves exhibit inflection points at which they bend backward or fall forward; thus, some workers alternate between increasing and decreasing their labor hours as…

Abstract

Purpose

Some labor supply curves exhibit inflection points at which they bend backward or fall forward; thus, some workers alternate between increasing and decreasing their labor hours as wages increase. No consensus has yet been reached on the underlying motive for such behavioral inconsistencies. This paper aims to develop a unified theory to explain each of these variations in labor supply.

Design/methodology/approach

The author employs a simple model of labor supply with additively separable utility over income and leisure. The sub-utility function for income is of the Friedman-Savage type, exhibiting preferences that alternate between increasing and diminishing marginal utility of income.

Findings

Labor supply curves slope downward where relative risk aversion is strong, and upward where relative risk aversion is weak or negative. Thus, utility functions with inflection points can form the basis of labor supply curves with inflection points.

Research limitations/implications

Friedman-Savage utility can explain virtually any observed labor supply functions, including convex, backward-bending, forward-falling, and inverted-S curves.

Practical implications

Inflection points on the labor supply curve can create multiple and unstable market equilibria. Labor-market policies, including legislation pertaining to minimum wages and collective bargaining, and policies to enhance education and economic security, may reduce aversion to risk and thereby decrease the prevalence of unstable equilibria.

Originality/value

This paper unites two lines of research – labor supply and Friedman-Savage utility – which have, rather remarkably, been separate to date. In doing so, it provides a new application of the classic Friedman-Savage paradigm, and a new explanation of labor supply curves with negatively-sloped regions.

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Studies in Economics and Finance, vol. 31 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 December 2004

Maryke Dessing

When the labor supply schedule is bending forward at low wage levels, the average cost curve of firms does the same. This leads to the possibility of multiple equilibria, in…

2184

Abstract

When the labor supply schedule is bending forward at low wage levels, the average cost curve of firms does the same. This leads to the possibility of multiple equilibria, in particular for monopolists, thereby opening a broader range of options and keeping non‐profitable firms in business. However, the global maximum is always occuring along the negatively sloping segment of the labor supply. Therefore, total welfare is declining, except perhaps in the case of monopolists, when firms are pursuing a low‐wage strategy to expand output and profits, and are exploiting labor's subsistence needs to pay wages below the marginal product.

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Journal of Economic Studies, vol. 31 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 April 2006

Eric J. Levin and Robert E. Wright

The purpose of the analysis is to estimate price elasticities of demand for individual FTSE‐100 stocks between 1 August 1994 and 31 July 1995.

1874

Abstract

Purpose

The purpose of the analysis is to estimate price elasticities of demand for individual FTSE‐100 stocks between 1 August 1994 and 31 July 1995.

Design/methodology/approach

This paper measures excess demand in order to measure the slope of the demand curve for individual stocks. An econometric approach is adopted that models the slope of the excess demand curve within an econometric framework using signed market maker transactions data between 1 August 1994 and 31 July 1995.

Findings

The findings confirm that the demand curves for individual stocks do slope downwards. For example, the mean estimated percentage fall in stock price caused by a new share issue that is 1 per cent of the existing number of outstanding shares is −5.6.

Practical implications

Downward sloping demand curves pose difficulties for theories in finance that rely on the law of one price and price‐takers in competitive markets. For example, the dividend policy and capital structure irrelevance theorems of corporate finance, and the efficient markets hypothesis assumption that the price of a stock is determined only by information about future cash flows and the discount rate are not consistent with a downward sloping demand curve.

Originality/value

The slope of the demand curve is estimated using an econometric model and market makers' transactions data for specific stocks. This approach identifies observable unexpected shifts in the demand for a stock as unexpected changes in market makers' inventories. This approach is superior to event studies because it provides multiple observations that enable the slope of the demand curve to be quantified with sufficient confidence to calculate the price elasticity of demand for the stock.

Details

Studies in Economics and Finance, vol. 23 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 October 1996

Roy H. Grieve

The recent publication of a sixth edition of Dornbusch and Fischer’s (D&F’s) Macroeconomics will be of interest to many teachers of macro theory. D&F’s text must currently be one…

1588

Abstract

The recent publication of a sixth edition of Dornbusch and Fischer’s (D&F’s) Macroeconomics will be of interest to many teachers of macro theory. D&F’s text must currently be one of the most widely used intermediate‐level guides to macroeconomics; as the authors themselves tell us, the book has been translated into many languages and is in use around the world “from Canada to Argentina and Australia, all over Europe, in India, Indonesia and Japan, from China and Albania to Russia”. The undogmatic “middle‐of‐the‐road” approach, together with the careful and clear presentation characteristic of this user‐friendly textbook, has won it many friends.

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Journal of Economic Studies, vol. 23 no. 4
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 9 May 2022

Richard Cebula and Maggie Foley

The purpose of this analysis is to explain why labor shortages may have appeared during this pandemic. Interestingly, in this COVID-19 pandemic period, the labor supply shortage…

Abstract

Purpose

The purpose of this analysis is to explain why labor shortages may have appeared during this pandemic. Interestingly, in this COVID-19 pandemic period, the labor supply shortage could very well become more easily explained than under the traditional portrayal of consumer economic behavior. The matter seemingly lends itself to provocative empirical inquiry.

Design/methodology/approach

From this model, it can be shown that the consumer’s labor supply curve is negatively sloped and, indeed, could even assume the form of a rectangular hyperbola. Applying this model in the labor market could explain the labor shortage in the USA during the COVID-19 pandemic.

Findings

Arguably, rational consumer behavior can take the form, under a variety of circumstances (including cultural), for consumers/households that have achieved a “comfortable” standing of living/utility level, involve the minimization of work effort to achieve that utility level. In other words, constrained utility maximization is not the only rational form of consumer economic behavior. When the former behavior prevails over the latter, there are myriad implications. These do include an inverse relationship between work effort and wage rate, i.e. a negatively sloped labor supply curve.

Originality/value

This paper departs from the conventional treatment of deriving the supply curve of labor based on constrained utility maximization. Instead, it acknowledges that consumers may have a target standard of living and seek to minimize the cost of achieving that given living standard.

Details

Journal of Financial Economic Policy, vol. 14 no. 6
Type: Research Article
ISSN: 1757-6385

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Abstract

Details

Documents from and on Economic Thought
Type: Book
ISBN: 978-1-84950-450-8

Abstract

Details

Further Documents from the History of Economic Thought
Type: Book
ISBN: 978-1-84950-493-5

Article
Publication date: 1 March 1990

Roger J. Sandilands

Allyn Young′s lectures, as recorded by the young Nicholas Kaldor,survey the historical roots of the subject from Aristotle through to themodern neo‐classical writers. The focus…

Abstract

Allyn Young′s lectures, as recorded by the young Nicholas Kaldor, survey the historical roots of the subject from Aristotle through to the modern neo‐classical writers. The focus throughout is on the conditions making for economic progress, with stress on the institutional developments that extend and are extended by the size of the market. Organisational changes that promote the division of labour and specialisation within and between firms and industries, and which promote competition and mobility, are seen as the vital factors in growth. In the absence of new markets, inventions as such play only a minor role. The economic system is an inter‐related whole, or a living “organon”. It is from this perspective that micro‐economic relations are analysed, and this helps expose certain fallacies of composition associated with the marginal productivity theory of production and distribution. Factors are paid not because they are productive but because they are scarce. Likewise he shows why Marshallian supply and demand schedules, based on the “one thing at a time” approach, cannot adequately describe the dynamic growth properties of the system. Supply and demand cannot be simply integrated to arrive at a picture of the whole economy. These notes are complemented by eleven articles in the Encyclopaedia Britannica which were published shortly after Young′s sudden death in 1929.

Details

Journal of Economic Studies, vol. 17 no. 3/4
Type: Research Article
ISSN: 0144-3585

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