6.1 The demand for Labour Flashcards
what is the difference between the goods market and the labour market
In the labour market firms demand labour and households supply labour (essentially the opposite of the goods market
what is derived demand?
demand for a good or FOP is a consequence of the demand for something else
how is labour a derived demand?
firms demand for labour is derived from its demand for goods, For example, the demand for people who make cars is
derived from the demand for cars. With no demand for cars, there will be no
demand for car manufacturers.
what does the demand for labour curve show?
how many workers will be hired at any given wage rate over a period of time
what is the definition of marginal physical product of labour?
the amount in which a firms total output rises in the short run as a result of employing one more worker (another way of saving marginal returns)
what is the definition of marginal revenue product of labour?
the money value of the addition to a firm output by employing one more worker
What is the equation get the marginal revenue product of labour and what does it assume?
assuming the goods and labour market is perfectly competitive;
marginal revenue product of labour= marginal physical product of labour x marginal revenue (price)
(As MR=AR=PRICE)
what is the labour market
the labour market is a factor market
How is the market demand for labour curve found?
is the sum of each firm’s demand curve for labour
How and Why can the market demand curve for labour shift?
A change in labour productivity,
if labour productivity rises (e.g. improving working conditions) more labour will demanded at each wage rate so the firms demand curve will shift to the right. (vis versa for inwards shift)
if MR (price) increases this will also shift out the labour demand curve due to labour demand being a derived demand of a good/service when the demand rises for this firms up the price and raise the demand for labour which will cause market demand to also shift to the right.
a change in technology,
e.g. if technological progress makes labour more productive (new machinery) shifts to the right
But could cause firms to substitute capital for labour e.g. automated methods of production reducing demand for labour
what does the elasticity of demand for labour measure
The elasticity of demand for labour measures how responsive the demand for labour
is when the market wage rate changes.
how do you calculate the elasticity of demand for labour measure
% change in quantity of labour demanded/ % change in wage rate
what factors will effect the elasticity of demand for labour measure
How much labour costs as a proportion of total costs. The higher the cost of
labour as a proportion of total costs, the more elastic the demand. Labour
costs are high as a proportion of total costs in the services.
The easier it is to substitute factors, the more elastic the demand for labour,
because firms can easily to switch to cheaper forms of production, such as
capital.
The PED of the product also affects labour. The more price elastic the
product, the more price elastic the demand for labour.
in the short run demand for labour is likely to be inelastic since it often takes time for employers to adjust the method of production
criticism of Labour demand curve/ MRP curve?
productivity is hard to measure in some industries e.g. teachers (MRP of teachers hard)
in real world professions work in teams, so hard to measure individuals performances
self employed don’t use MRP
perfectly competitive labour markets aren’t real e.g. trade unions bargaining for higher wage rates
