3.5 - Elasticity of Demand for Labour

Question 1

What is the elasticity of demand for labour?

Answer 1

Responsiveness of QD of labour to a change in the wage rate

Question 2

How is elasticity of demand for labour calculated?

Answer 2

% Change QD/% Change WR

Question 3

What affects the elasticity of demand for labour?

Answer 3

Wage costs as % of TC
Ease + cost of substitution
Time
PED

Question 4

How does the proportion of wage costs affect the elasticity of demand for labour?

Answer 4

Higher proportion of TC
DL more elastic
Higher wage => Contraction

Question 5

How does substitution affect the elasticity of demand for labour?

Answer 5

Easier + cheaper => Elastic
Flexible capital inputs

Question 6

How does time affect the elasticity of demand for labour?

Answer 6

Short run - Inelastic
Long run - Elastic

Question 7

Why is labour demand inelastic in the short run?

Answer 7

Replacement difficulties
Skills + training/education

Question 8

How does PED affect the elasticity of demand for labour?

Answer 8

Price Elastic Demand => Elastic Labour Demand

Question 9

Why does PED affect EDL?

Answer 9

Determines whether costs can be passed on
Inelastic demand => Higher labour costs can be passed on
Consumers will pay regardless