Ch. 11 - The Labour Market

Question 1

What is the Marginal Product of Labour?

Answer 1

The extra production that occurs from hiring an extra worker

Question 2

What is the Marginal Revenue Product?

Answer 2

Measures the marginal revenue from hiring and additional worker

Question 3

How do you calculate the Marginal Revenue Product?

Answer 3

Marginal Product of Labour * Price of the output

Question 4

What are the 4 factors that shift labour demand

Answer 4

1. Changes in demand for your product
2. Changes in the price of capital
3. Better management & productivity gains
4. Nonwage benefits, subsidies, and taxes

Question 5

What is Labour Supply?

Answer 5

The time you spend working in the market
(Yes this is the correct definition according to the textbook)

Question 6

What is the Rational Rule for Workers?

Answer 6

Work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure

Question 7

What is the Substitution Effect?

Answer 7

Measures how people respond to a change in relative prices. A higher wage increases the returns to work relative to leisure, leading you to work more

Question 8

What is the Income Effect?

Answer 8

Measures how people’s choices change when they have more income. A higher wage increases your income, leading you to choose more leisure & hence less work

Question 9

What are 4 factors shifting the Labour Supply?

Answer 9

1. Changing wages in other occupations
2. Changing number of potential workers
3. Changing benefits of not working
4. Nonwage benefits, subsides, & income taxes