3.5.1 Labour Demand

Question 1

Factors impacting demand for labour

Answer 1

1. The price of the good or service: The higher the price of the good or service, the more profitable it is for firms to produce it, and the more labour they will demand.
2. Productivity of labour: The more productive workers are, the more output they can produce per hour, and the more labour firms will demand.
3. The cost of labour: The higher the cost of labour, the less profitable it is for firms to hire workers, and the less labour they will demand.
4. The cost and availability of substitutes: If there are good substitutes for labour, such as capital or automation, firms will be less likely to demand labour.
5. The level of technology: The higher the level of technology, the more productive workers can be, and the more labour firms will demand.
6. The level of government regulation: The more regulations there are on businesses, the more costly it is for them to operate, and the less labour they will demand.
7. The level of economic activity: The higher the level of economic activity, the more goods and services are being produced, and the more labour firms will demand.

Question 2

Describe the demand for labour

Answer 2

The demand for labour is a derived demand, meaning that it depends on the demand for the goods and services that labour produces.