00:01
So here the most important phrase is perfect substitutes.
00:05
Perfect substitutes means they replace each other seamlessly.
00:09
So you simply want to use what's cheaper because you don't need to worry about mixing them together in the right ratio.
00:16
They can be swapped in and out simply.
00:20
So in terms of value, right, you have one machine is equal to three workers.
00:29
Right so we want to think about is the price better or worse so we know that um in a sort of in a we're told that the price of the machine is equal to 750 and the price of the worker is equal to 900 right um so here think about the let's suppose that a machine produces 10 units or actually let's say 15 units, and that means workers produce five, three times five.
01:06
So to get 15 units, you can pay 750 or you can pay 900, right? this is equal to three times 300.
01:14
So the machine is three times as productive, but doesn't cost three times as much.
01:19
Much costs less than three times as much.
01:23
So here you are going to hire entirely machines and no workers.
01:35
There's no point in hiring workers.
01:37
You can always get more output from a machine for the same price.
01:42
For b, if we have the price of the machine is equal to 750, but now the price of the worker is equal to 225, we've got to multiply that by three to make it comparable.
01:55
That means that we can get three workers for 675.
01:58
So we can get the units of output by paying 750 for the machine or 675 for the workers.
02:04
So now we want to hire only workers and no machines because now the workers are cheaper than the machines as workers got cheaper.
02:15
What is the elasticity of labor demand? so what does labor demand look like here? that's the most challenging question.
02:26
What is the labor demand curve anyway? well, for c, labor demand is a function of the wage.
02:34
So the critical, the critical wage is equal to 250, right? that's the point where these things are substitutes.
02:42
So at 250, you start, it is the crucial value...