3.5.1- Demand For Labour Flashcards
What is the labour market?
A factor market
What type of demand is labour?
A derived demand
What is the demand for labour determined by?
Marginal revenue product
What is marginal revenue product?
The extra revenue generated by an individual worker
What is the law of diminishing marginal productivity?
Increasing the number of workers is likely to increase MRP at first, then cause it to decline
What is the equation for MRP?
MPP x MR
Why does the demand curve for labour slope down?
As more workers are hired, productivity decreases due to capital being used up
What happens to work demand in the long run?
It decreases as high wage rates encourage businesses to use machinery instead of workers
What is the demand for labour affected by?
-the wage rates
-demand for products
-price of product
-productivity of labour
-substitutes for labour
-profitability of the firm
-number of firms in a market
Why does the price of a product affect demand for labour?
If price goes up, MRP will go up so firms are more prepared to pay for labour
Why does productivity of labour affect demand for labour?
The more productive workers are, the higher the demand for them as the MPP will increase so MRP will increase
Why does substitutes for labour affect demand for labour?
If Labour can be replaced by cheaper capital, then the demand for labour will fall
Why does profitability of the firm affect demand for labour?
A more profitable firm can afford to employ more workers
Why does number of firms in a market affect demand for labour?
If there’s only one employer, the demand for labour is lower
What is marginal physical product?
The number of units an additional worker produces
