CH9: Labour Market Flashcards
What is the main factor determining labour cost?
Wages and productivity.
How does the labour market differ from the goods market?
Labour is rented, not sold; requires physical presence; involves contracts, unions, and non-monetary factors.
What are the requirements for perfect competition in the labour market?
Many employers/workers, homogeneous labour, mobility, no gov’t interference, perfect information.
What determines wage and employment in a perfectly competitive labour market?
Intersection of labour supply and demand.
What does the backward-bending labour supply curve represent?
Substitution effect and income effect on hours worked.
What is derived demand in the context of labour?
Labour is demanded for the goods/services it helps produce, not for itself.
What is marginal revenue product (MRP)?
Additional revenue generated by one more unit of labour.
What causes shifts in the market demand for labour?
Number of firms, product price changes, and changes in MPP.
What causes shifts in the supply of labour?
Population changes, immigration, alternative job wages, working conditions, and benefits.
What happens when labour supply increases inelasticly?
Wage rate changes significantly; smaller employment effect.
What is the likely result of a minimum wage above equilibrium?
Labour surplus (unemployment).
What does imperfect labour market mean?
Real markets often face rigidities and slow adjustments to changes in demand/supply.
What determines the equilibrium wage in a labour market?
The intersection of labour supply and labour demand.
What happens when labour demand increases?
Wage and employment both increase.
What happens when labour supply increases?
Wage falls but employment increases.
What is a monopsony in labour markets?
A situation where there is only one buyer of labour.
Why is the labour market imperfect?
Due to unions, monopsonies, regulation, limited mobility, heterogeneity, and imperfect info.
What is meant by derived demand for labour?
Labour is demanded for the value of goods/services it helps produce.
What are the substitution and income effects in labour supply?
Substitution: higher wage = more work.
Income: higher wage = more leisure, less work.
What is the shape of the individual labour supply curve?
Backward-bending due to income and substitution effects.
How do trade unions increase wages by restricting supply?
Shift supply curve left → higher wage, but lower employment.
What happens if unions enforce a wage above equilibrium?
Wage increases, but unemployment increases due to excess supply.
How can unions raise both wages and employment?
By increasing demand for the product, which increases derived labour demand.
