3.5.1 - Demand for labour Flashcards
What is a firm ?
A firm is defined as ‘an organisation that brings together factors of production in order to produce output’
What is the aim of a firm ?
To produce output to sell in order to generate revenue and make profits.
What is one of the key factors of production used by firms?
Labour
What type of demand is the demand for labour ?
It is a derived demand
Define derived demand
Demand for a good or service that arises as a result of demand for another related good or service
What happens to the demand of labour as its price decreases ?
As the price of labour decreases the demand increases
What is the price of labour referred to as ?
Wage
Salary
What are the factors that can shift the demand curve for labour ?
Changes in the productivity of labour
Changes in the price of the good labour produces
Changes in the demand of the good labour produces
Changes in the price of capital
How can changes in the productivity of labour shift the demand curve for labour ?
If labour becomes more productive for some reason, then this will lead to an increase in the demand for labour.
How can changes in the price of the good labour produces shift the demand curve for labour ?
If the price of the good or service labour produces increases, economic theory predicts that firms will increase production.
To expand output firms will need to increase labour
How can changes in the demand of the good labour produces shift the demand curve for labour ?
If the demand of the good that the labour produces increases, more workers will be needed in that industry.
Therefore, demand for labour would increase.
How can changes in the price of capital shift the demand curve for labour ?
If capital becomes more expensive, firms will employ more labour
But if labour becomes more expensive, the demand fora capital will increase
In what economies are capital intensive processes likely to be popular ?
In the developed world
In what economies are labour intensive processes likely to be popular ?
In the developing world
This is because labour is abundant and it is cheaper to employ workers than automate a process
Main takeaway points
Labour is a derived demand.
The labour demand curve is downward sloping.
Movements along a demand curve for labour are caused by changes in the wage rate.
Shifts in a demand curve for labour are caused by other factors.
