6.1 The Demand Of Labour

Question 1

What is a labour market an example of?

Answer 1

A factor market

Question 2

What is a factor market?

Answer 2

Market in which the services of a factor of production are brought and sold

Question 3

What are the four factor markets?

Answer 3

Labour market
Land market
Capital goods market
Entrepreneurial skills

Question 4

What is the relationship of firms and households in the good and factor market?

Answer 4

Circular

In goods market finished goods flow from firm to households
In factor market workers sell labour to employees

Question 5

Who are the sources of supply in good markets?

Answer 5

Firms

Question 6

Who supplies to the factor market?

Answer 6

The households

Question 7

To be able to purchase from the goods market what do households need?

Answer 7

An income and for most people this comes in the form of selling labour services in the labour market

Question 8

What is needed to exercise demand and who is demanding In good and factor markets

Answer 8

Willingness and able to pay
Factor market: firms demand
Goods market:households demand

Question 9

Derived demand?

Answer 9

Demand for good or factor of production not wanted for its own sake but as a consequence of the demand for something els

Question 10

How is labour derived demand?

Answer 10

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

Question 11

What is the marginal physical product of labour?

Answer 11

Addition to firms total output brought about by employing one more worker

Question 12

What is the marginal physical product of labour the same as?

Answer 12

Marginal returns of labour or marginal product of labour

Question 13

What happens to the marginal product of labour as additional workers are hired?

Answer 13

It decreases

Question 14

Why does the marginal product of labour decrease as workers are hired?

Answer 14

Laws of diminishing returns or diminishing marginal productivity

Question 15

What is the marginal revenue product of labour?

Answer 15

The money value of the addition to a firms total output brought about by employing one more worker

Question 16

How can you calculate the marginal revenue product of labour?

Answer 16

MPP X marginal revenue

Question 17

What is marginal revenue?

Answer 17

Addition to firms total sales revenue resulting from the sale of each extra product in the goods market

Question 18

When is MR identical to the goods price?

Answer 18

When there is a perfectly competitive goods and labour market

Question 19

Assuming perfect competition in the goods market in which a firm sells its output, the slope of MPR can only be explained by?

Answer 19

Diminishing marginal physical product of labour(by the laws of diminishing returns)

Question 20

When happens if a good is sold in imperfectly competing good market and why

Answer 20

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

Question 21

In a perfectly competitive good market what is the demand curve like?

Answer 21

Horizontal

Question 22

What does the demand curve for labour show?

Answer 22

Relationship between wage rate and number of workers employed

Question 23

Poverty trap?

Answer 23

Costs more money to work than staying at home(e.g childcare)

Question 24

Full employment?

Answer 24

Everyone who wants a job has one as the going rate

Question 25

When there is full employment what is the unemployment rate?

Answer 25

National wage unemployment

Question 26

Diagram for economy’s good markets

Answer 26

Question 27

Diagram for economy’s factor markets

Answer 27

Question 28

Diagram for the MPP

Answer 28

Question 29

What is MPP

Answer 29

Addition to firms total output by employing one more worker

Question 30

What is the marginal revenue product?

Answer 30

Monetary value of the addition to a firms total output brought by employing one more worker

Question 31

MRP=

Answer 31

D

Question 32

MRP diagram

Answer 32

Question 33

MPP X MR=

Answer 33

MRP

Question 34

Diagram where MR=AR=price in a goods market

Answer 34

Question 35

What does this diagram tell me about the labour demand curve

Answer 35

It is addition of the demand curves of all the firms in the market (explains why it’s slightly different)

Question 36

What factors shift labour demand curve to the right?

Answer 36

-change in technology
-change in labour productivity
-higher demand for the final product

Question 37

What factors shift the labour demand curve to the left?

Answer 37

Inflation
Recession

Question 38

How does a change in labour productivity shift the market demand curve for labour

Answer 38

If labour productivity increases ore labour is demanded at each wage rate causing it to shift to the right

Question 39

How can a change in technology shift the labour demand curve?

Answer 39

-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)

Question 40

What is the elasticity demand of labour?

Answer 40

Proportionate change in demand for labour following a change in the wage rate

Question 41

How can you calculate the wage elasticity for labour?

Answer 41

Proportional change in quantity demanded/proportional change in wage rate

Question 42

In what 4 situations would the demand for labour be elastic?

Answer 42

-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