3.5

Question 1

Supply of labour

Answer 1

How many workers are willing and able to work at any given wage rate

Question 2

Factors influencing the demand for labour

Answer 2

Demand for product, more demand = more workers needed to suffice output
Prices of others factors of production
Technology advancements e.g AI taking jobs
Productivity of workers
Wage rate- as wage rate increases demand for labour contracts

Question 3

what is the labour supply

Answer 3

Number of hours people are willing and able to supply at a given wage rate at a given wage rate at a given period of time

Question 4

Why labour supply curve is backwards bending

Answer 4

Upwards:
Positive income effect- higher wages incentivise people to work mode
Substitution effect- opportunity cost of leisure has increased
Backwards:
Negative income effect- people reach target income and decide to stop working
Negative income effect overpowers the other effects causing it too bend backwards

Question 5

Reservation wage

Answer 5

Lowest wage people are willing to work at

Question 6

Why is labour supply curve upwards sloping

Answer 6

As wage rises other workers enter this industry attracted by the incentive of higher wages

Question 7

Factors influencing the supply of labour

Answer 7

Wages in substitute occupations
How skilled you must be to work ( doctor vs binman)
Non monetary benefits
Occupational mobility of labour
School leaving age
Net migration of labour
Demographic factors (geographical mobility)

Question 8

Definition of Elasticity of labour supply

Answer 8

Extent to which labour supply responds to a change in wage rate in a given time period

Question 9

Elasticity in skilled vs unskilled environments

Answer 9

Highly skilled - inelastic as you cannot train doctors overnight
Low skilled - elastic because anyone can work at McDonalds

Question 10

Determinants of elasticity of supply of labour

Answer 10

Nature of skills + qualifications required to work in a industry, meaning lengthy training time
Vocational nature of work- less sensitive to a wage change
Time period- everything is more elastic in the long run
Level of unemployment

Question 11

Causes of Outwards shift in supply of labour

Answer 11

Wages in substitute industries being lower
Demographic, maternity pay increase 
Non monetary rewards 
Improvements in working condition 
More transport links

Question 12

Causes of Inwards shift of supply in labour market

Answer 12

Wages in other countries increasing ( doctors move to USA)
barriers to entry in market such as needing lots of training ( cannot make doctor overnight)
Demographic factors financial jobs available in London not available to workers in the north

Question 13

Income effect

Answer 13

positive- workers are incentivised to work more due to higher wages
negative- Workers receive a certain level of income and believe that is enough, they decide at that point their leisure time is more important

Question 14

Substitution effect

Answer 14

As wage increases the opportunity cost of not working becomes more costly meaning you work more

Question 15

Difference between positive and negative income effect

Answer 15

Positive , higher wages = more desire to work

Negative , people reach desired income and decide to work less

Question 16

How is wage effected due to a shift in demand when elasticity of supply is low

Answer 16

Large change
Due to supply being inelastic ( maybe due to highly skilled industry) wage must be increased dramatically to tempt highly skilled workers into the market

Question 17

How can government intervene in product markets ( regulation)

Answer 17

Quality standards 
Self regulation 
Performance targets 
Subsides 
Price control 
Profit control

Question 18

How can government intervene in product markets ( competition)

Answer 18

Break up the monopoly
Lower barriers to entry
Deregulation

Question 19

Type of intervention and examples

Answer 19

Price regulation - energy price caps
Profit regulation- pharmaceutical example
Quality standards- water
Performance targets- incentives to be more productive

Question 20

Case for higher minimum wage

Answer 20

Anti discrimination
Higher incentives to work
More highly trained workforce
Poverty reduction

Question 21

Case for not increasing the minimum wage

Answer 21

Additional cost for firms may lead them to employ less people ( unemployment)
Smaller businesses may struggle to make a profit
More benefit to spend extra money on more training than paying higher wages
Less competitive in global markets as profits cannot be used for innovation
Inflation which could lead to lower real incomes

Question 22

Factors effecting the PED of labour

Answer 22

Directly correlates to PED for the product, if good is elastic then so is the labour
Proportion of wages to the total cost of production
Substitutes such as machinery or labour in other countries then demand will be elastic
Time, everything is more elastic over time ( machinery can be built if wage rate increases)

Question 23

Market failure in labour supply

Answer 23

Geographical immobility - workers find it difficult to move their families to places where there is jobs
Occupational immobility- workers can’t move jobs due to lack of transferable skills
Leads to excess supply or demand of labour in specific areas

Question 24

How are wages decided in perfectly competitive markets

Answer 24

Purely on supply and demand
All wages in the same industry would be the same
Liverpool Portsmouth waiter example

Question 25

Monopsony is labour market

Answer 25

Since monopsony is the only buyer of labour in that market they can push the wage rate down
Mc ac mr diagram
Equilibrium point where mr = ac (s=d)
Monopsony mc=mr then drop to ac curve