4.1 The demand for labour

Question 1

What is the difference between the labour market and the goods market?

Answer 1

Firms and households simultaneously in both markets, but their roles are reversed
The firm now demands the labour and the households supply the labour

Question 2

What are the influencing factors of demand for labour?

Answer 2

• Labour is demanded by employers
• The cost of labour is wages
• At high wage rates, demand will be low
• At high wage rates, demand will be high
• Demand for labour is directly linked to the demand for the product being made
• Elasticity of demand for labour is directly linked to the elasticity of demand for the product being made

Question 3

What is derived demand?

Answer 3

The demand for factors of production such as labour is derived from the demand for the product they are used to make

An increase in demand for one good will see an increase in the derived demand for labour

Question 4

What is marginal productivity theory?

Answer 4

In order to understand the demand curve for labour, we need to understand the marginal physical product of labour (MPPL)
This is just another term for the marginal returns of labour
How much does overall output increase when employing one more worker

Question 5

How do you calculate the marginal product of labour?

Answer 5

Change in total output / change in labour = marginal product of labour

Question 6

How do you calculate marginal revenue product?

Answer 6

MRP = MPP x MR

Question 7

How do you calculate the elasticity of demand for labour?

Answer 7

% Δ QL
/
% Δ WR

Question 8

What factors impact the elasticity of demand for labour?

Answer 8

Elasticity of demand for the product
Time
Availability of substitutes
Labour costs as a proportion of total cost