6.1 The Demand Of Labour Flashcards
What is a labour market an example of?
A factor market
What is a factor market?
Market in which the services of a factor of production are brought and sold
What are the four factor markets?
Labour market
Land market
Capital goods market
Entrepreneurial skills
What is the relationship of firms and households in the good and factor market?
Circular
In goods market finished goods flow from firm to households
In factor market workers sell labour to employees
Who are the sources of supply in good markets?
Firms
Who supplies to the factor market?
The households
To be able to purchase from the goods market what do households need?
An income and for most people this comes in the form of selling labour services in the labour market
What is needed to exercise demand and who is demanding In good and factor markets
Willingness and able to pay
Factor market: firms demand
Goods market:households demand
Derived demand?
Demand for good or factor of production not wanted for its own sake but as a consequence of the demand for something els
How is labour derived demand?
Firm will only employ more of profits can be made by doing so, but this assumes labour is employed to produce in factor and good markets(therefore labour is derived demand)
It is derived from the demand of goods
What is the marginal physical product of labour?
Addition to firms total output brought about by employing one more worker
What is the marginal physical product of labour the same as?
Marginal returns of labour or marginal product of labour
What happens to the marginal product of labour as additional workers are hired?
It decreases
Why does the marginal product of labour decrease as workers are hired?
Laws of diminishing returns or diminishing marginal productivity
What is the marginal revenue product of labour?
The money value of the addition to a firms total output brought about by employing one more worker
How can you calculate the marginal revenue product of labour?
MPP X marginal revenue
What is marginal revenue?
Addition to firms total sales revenue resulting from the sale of each extra product in the goods market
When is MR identical to the goods price?
When there is a perfectly competitive goods and labour market
Assuming perfect competition in the goods market in which a firm sells its output, the slope of MPR can only be explained by?
Diminishing marginal physical product of labour(by the laws of diminishing returns)
When happens if a good is sold in imperfectly competing good market and why
Marginal revenue product of labour declines faster than in perfectly competitive good market
Because in imperfectly competitive good markets marginal revenue falls as output increases
-firm faces a downward sloping demand curve
In a perfectly competitive good market what is the demand curve like?
Horizontal
What does the demand curve for labour show?
Relationship between wage rate and number of workers employed
Poverty trap?
Costs more money to work than staying at home(e.g childcare)
Full employment?
Everyone who wants a job has one as the going rate
When there is full employment what is the unemployment rate?
National wage unemployment
Diagram for economy’s good markets
Diagram for economy’s factor markets
Diagram for the MPP
What is MPP
Addition to firms total output by employing one more worker
What is the marginal revenue product?
Monetary value of the addition to a firms total output brought by employing one more worker
MRP=
D
MRP diagram
MPP X MR=
MRP
Diagram where MR=AR=price in a goods market
What does this diagram tell me about the labour demand curve
It is addition of the demand curves of all the firms in the market (explains why it’s slightly different)
What factors shift labour demand curve to the right?
-change in technology
-change in labour productivity
-higher demand for the final product
What factors shift the labour demand curve to the left?
Inflation
Recession
How does a change in labour productivity shift the market demand curve for labour
If labour productivity increases ore labour is demanded at each wage rate causing it to shift to the right
How can a change in technology shift the labour demand curve?
-if technical progress makes labour more productive relative to other factors or production firms as likely to substitute it for capital(shift to the left)
What is the elasticity demand of labour?
Proportionate change in demand for labour following a change in the wage rate
How can you calculate the wage elasticity for labour?
Proportional change in quantity demanded/proportional change in wage rate
In what 4 situations would the demand for labour be elastic?
-when the relevant wage cost forms only a small part of production costs
-demand for the good or service being produced is inelastic
-when it is difficult to substitute other factors of production
-in short run,rather than long run as it takes time for employers to adjust their method of production
