3.5 Labour Market

Question 1

What type of demand is labour?

Answer 1

Derived demand - a demand resulting from the demand for something else.
If the demand for a product increases, the demand for labour to produce that product increases.

Question 2

Factors affecting elasticities

Answer 2

• If a firm can swap easily from labour to capital then demand is more elastic.
• If wages make up a small amount of total costs then demand will be inelastic.
• If wages make up a large amount of total costs, demand is elastic.

Question 2

What is marginal productivity of labour?

Answer 2

MRPL - the additional revenue from hiring one more worker
Marginal physical product of labour x Marginal rev

Question 3

Elasticities

Answer 3

In the long run, demand for labour is more elastic since there is more time to find a replacement worker.
The more elastic the demand for the product is, the more elastic demand for labour.