4.1.6 - The labour market

Question 1

What is the labour market?

Answer 1

A factor market

Question 2

How is the supply of labour determined?

Answer 2

• By those who want to be employed (employees) whilst the demand for labour is from employers.

Question 3

What type of demand is labour

Answer 3

• Labour is a derived demand
• The demand for labour comes from the demand for what it produces.
  -For example, the demand for people who make cars is derived from the demand for cars.

Question 4

How does demand and elasticity link to labour?

Answer 4

• Demand is related to how productive labour is and how much the product is demanded.
• The elasticity of demand for labour is linked to how price elastic the demand for the product is

Question 5

What is the demand for labour affected by?

Answer 5

• The wage rate
  -Deand for products
• Productivity of labour
  -Substitutes for labour
• How profitable the firm is
• The number of firms in the market.

Question 6

How does the wage rate link to the demand of labour?

Answer 6

• The downwards sloping demand curve shows an inverse relationship between how much the worker is paid and the number of workers employed.
• When wages get higher firms might consider swtching production to capital, which might be cheaper and more productive than labour.

Question 7

How does demand for the products link to the demand for labour?

Answer 7

• Since the demand for labour is derived from the demand for products, the higher the demand for the products the higher the demand for labour

Question 8

What is the marginal productivity theory of the demand for labour?

Answer 8

• The theory states that the demand for labour is dependent on the marginal revenue product.
• calculated by MRP= MP X MR
• The marginal product of labour is the additional output each unit of labour can produce