3.5 Labour markets

Question 1

In labour markets who demands and who supply ?

Answer 1

Firms demand labour to produce goods. We the workers supply labour to earn wages

Question 2

In demand, what happens when wage goes up and wage goes down ?

Answer 2

Quantity demanded of labour will go down when wages go up and quantity demanded of labour will go up when wages go down as it will become more affordable for them.

Question 3

In supply, what happens when wages go up and wages go down ?

Answer 3

Quantity supplied of labour will go up when wages go up as people can make more money. As wages go down QSL goes down

Question 4

What happens when wages go above the wage equilibrium ? and explain what happens

Answer 4

There will be unemployment also know as excess supply of labour. The labour force would have to accept lower wages and go back to the equilibrium wage point. This would result in quantity demanded of labour to go up

Question 5

What happens when we go below the equilibrium wage ? and explain what happens

Answer 5

There will be an excess demand of labour. This would mean firms would have to offer higher wages in order to get workers to work for them. Wage price will go back to the equilibrium wage. This would result in quantity supplied going up

Question 6

What is elasticity of demand for labour ?

Answer 6

this is how responsive demand is for labour to a change in wages

Question 7

What does it mean when demand for labour is elastic and when demand for labour is inelastic ?

Answer 7

When demand for labour is elastic this means demand is very responsive when there is a change in wages. For instance a Mcdonalds worker asking for higher wages. When demand for labour is inelastic this means demand is not very responsive when there is a change in wages. For instance a footballer asking for more wages

Question 8

What are 3 factors affecting how elastic demand for labour is ?

Answer 8

Substitute, % of total cost and time

Question 9

What is substitutes and how can it affect demand for labour ?

Answer 9

Substitutes are how easy it is to replace workers when wages go up. For example, in mcdonalds workers would be elastic. This is because workers wnating more wage would be told to leave as they can easily be replaced by other workers or a computer as it requires low amount of skill. Demand is very responsive. However, for a huge footballer like Ibrahimovic demand for labour is inelastic as he is hard to replace with anyone as of his unique skill set. Therefore clubs would be unresponsive as it is hard to replace

Question 10

What does % of TC mean and how is it related to demand for labour ?

Answer 10

% of TC is how much % of TC is made from worker’s wages. For instance, firms where wages take up small % of the total cost will be unresponsive and it will not matter much to them and demand is inelastic. However, firms where wages take up large % of TC will be very responsive as it can have a huge impact on them and therefore demand will be elastic.

Question 11

How does time relate to demand for labour ?

Answer 11

In the short run, firms do not have enough time to replace workers so there will be unresponsive and wages will be higher. For instance, if there is an emergency with your plumbing demand for plumber workers to help you would be inelastic as it is urgent. Therefore demand is inelastic. Wages would be high. In the long run, firms have enough time to replace substitutes and look for replacements and therefore they will be responsive and demand will be elastic. For example with plumbers they will have enough time to look for many more in the long run. Wages will be lower

Question 12

What is elasticity of supply ?

Answer 12

This is how responsive supply is to a change in wages.

Question 13

What does it mean when supply of labour is inelastic and when supply of labour is elastic ?

Answer 13

When supply of labour is inelastic, when wages go up quantity supplied of labour will go down by a smaller amount. For example a doctor will take a while to become a fully skilled trained doctor. When supply of labour is elastic, when wages go up quantity supplied of labour will go up by a larger amount. For instance a waiter will be responsive for a job as it is easy to become a waiter.

Question 14

What are factors that effect how elastic supply of labour is ?

Answer 14

these are skills and qualifications, unemployment levels and time

Question 15

How does skills and qualifications affect supply of labour ?

Answer 15

Jobs which needs high skills and qualifications will demand higher wages as it requires a lot of training and skills to become good at it. For instance, doctors. In the SR labour of supply will be unresponsive and it will mean inelastic supply. This will mean high wages. If a job reuquires low skills and qualifications like a mcdonalds worker than it will be easy to get employed and supply will be elastic. They will be responsive and will offer lower wages

Question 16

How does unemployment affect the elasticity of supply of labour ?

Answer 16

If a country has a high unemployment rate, this means they are desperate for income and so an increase in wages would mean higher quantity supplied of labour. They would be responsive and would result in elastic supply. If a country has a low unemployment rate, this means they are not in eed of income. An increase in wages would mean a lower increase in QSL. They would be unresponsive and would be inelastic.

Question 17

How does time effect the elasticity of supply for labour ?

Answer 17

In the short run, supply is inelastic as they will require little time to apply and train for it. For instance a doctor would need a while to become fully qualified. Therefore supply of labour would be unresponsive and would mean inleasitc supply. This would mean higher wages. In the long eun, supply is elastic as they will have time to apply and train for it. Doctors will have enough time to become qualified and so they will be responsive and supply would be elastic. Wages would be lower.