Okay, a second thing that we can use this simple graph as a reminder of,
is marginal analysis, which we talked about in an earlier video.
Now remember that the margin is the border or the edge between two actions or
outcomes.
So for example, it's the last hour that you want somebody to work, or
in the example that I'm gonna use this graph to illustrate.
Suppose that you want to hire or retain ten people for a work unit.
The marginal worker is the one on the margin, the tenth worker,
the last worker you have to retain or recruit.
So this labor supply curve suggests that maybe the first nine will be easy to hire
or easy to retain.
They're willing to work for a wage less than the competitive wage rate.
But it's the tenth worker that you need to be concerned with,
in terms of recruitment or retention.
And it's going to be that tenth worker,
that worker on the margin, that's going to then determine wages and other terms and
conditions of employment for the entire work group.
So thinking about the margin, again, is very important in an economic analysis.
It's something that a manager should keep in mind.
The third thing that we can look at from this graph is the importance of
perfect competition.
Now all markets are competitive to one degree or another, but
perfect competition, ideally competitive markets,
have a special place in mainstream economic thought.
And so markets are perfectly competitive when all agents,
in this case employers as well as employees, have complete information,
when transactions are costless, when property rights are legally protected and
other requirements are met ,such that all agents are equal.
When this is true, basic economic theory can show that there is no better way to
allocate scarce resources.
There's no better way to maximize overall welfare than relying on
the invisible hand of competition in perfectly competitive markets.