5.3 Microeconomics Labour Markets Flashcards
Labour
A factor of production which uses human capital
Derived demand
Where the demand for a factor of production is based upon the demand for a product.
Demand for labour
Willingness and ability of a firm to hire labour at differnet wage rates.
Wage
The cost of a unit of labour (the marginal cost)
Marginal revenue product of labour
the additional revenue received by a firm as it increases output by using an additional unit of labour input
MPPxP=
Marginal revenue product of labour (MRPL)
Marginal physical product
Amount of additional output produced if the firm increases its labour input by 1 unit (i.e. adding one more person-hour)
MRPL
Marginal revenue product of labour
How does the firm decide how many workers to employ?
Where MRPL=MC (wage rate).
What happens to the demand for labour during a recession?
It falls
Wage elasticity of labour demand calculation
%change in quantity demanded for labour/% change in wage
What does wage elasticity of demand measure?
Responsiveness of demand for labour by firms when there is a change in the wage rate.
What factors affect WEDL?
Proportion of labour costs as % of total costs, ease of factor substitution; PED for final product;time period
What can make WEDL more elastic?
Long run; easier to substitute capital to replace labour; high proportion of labour costs; PED greater than 1 (elastic)
What will happen to the demand for labour if there is a rise in demand for the good?
Shifts right
What will happen to the demand for labour if labour becomes more productive.
Shifts right
Increases MRP so labour becomes more cost efficient compared to capital.