4. The labour market Flashcards
Marginal physical product of labour (MPPL)
Measures the amount by which a firm’s output rises in the short run (holding capital fixed), as a result of employing 1 more worker
Marginal revenue product of labour (MRPL)
The money value of the addition to firms output brought about employing 1 more worker
MRPL = marginal physical product of labour x marginal revenue
Under perfect competition:
(since MR = AR = D = price)
MRPL = marginal physical product of labour x price
Derived demand
Demand for a good or factor of production, not wanted for its own sake, which is a consequence of demand for something else
Elasticity of demand for labour
Proportionate change in demand for labour following a change in demand for labour following a change in the wage rate
Substitution effect
A higher hourly wage rates makes work more attractive that leisure, so workers substitute labour for leisure
Income effect
An increase in the hourly wage rate means higher real income, and if leisure is normal good, the quantity of leisure demanded goes up which means a reduction in the quantity of labour supplied
Net advantage
The sum of the monetary and non monetary benefits of working
Elasticity of supply of labour
Proportionate change in the supply of labour following a change in the wage rate
Average cost of labour
Total wage costs divided by the number of workers employed
Marginal cost of labour
The addition to a firms total cost of production resulting from employing one more worker
Monopsony
There is only one buyer in a market
Monopsony power
The market power exercised in a market by the buyer of a good or service or the services of a factor of production such as labour, even though the firm is not a pure monopsonist
Occupational immobility of labour
When workers are unwilling or unable to move from one type of job to another; e.g. because different skills are needed
Geographical immobility of labour
When workers are unwilling or unable to move from one area to another in search of work
Trade union
A group of workers who join together to maintain and improve their conditions of employment, including their pay
