1. Joe Kelp owns a commercial fishing fleet, and hires a captain for each boat i
ID: 1194960 • Letter: 1
Question
1. Joe Kelp owns a commercial fishing fleet, and hires a captain for each boat in his fleet. These workers are considered to be part of the crew. In the market for fresh Pacific salmon, Joe is one of thousands of fishermen. Although Joe usually catches a significant number of fish each year, his contribution to the entire salmon harvet is negligible relative to the size of the market. Joe is considered to be a perfect competitor in the output market. If so, explain why his demand curve for labor (crew workers) is downward-sloping, and his supply curve for labor is perfectly elastic at the market wage.
Explanation / Answer
Here, we are talking about two markets: The goods market & the labor market.
Goods market is the market for salmon fish where Joe sells his fish. There, he is one of numerous sellers, part of a perfectly competitive market.
Labor market is the market where Joe hires his laborers for catching fish. The labor market is not perfectly competitive, therefore the demand curve is downward sloping, indicating as wage rises (falls), labor demand falls (rises). But his labor supply curve is perfectly elastic because, there are thousands of other employers (fishermen). If Joe reduces the wage rate, workers will go to other fishermen to seek job. So the labor supply curve is perfectly elastic and completely sensitive to changes in wage rate.
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