CH9: Labour Market Flashcards
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 effects of implementing a minimum wage?
Labour surplus (unemployment).
What are the requirements for perfect competition in the labour market?
Many employers/workers, homogeneous labour, mobility, no gov’t interference, perfect information.
What is marginal revenue product (MRP) of labour?
Additional revenue generated by one more unit of labour.
What is the labour market equilibrium condition?
Profit is maximised where MR = MC, at the kink point.
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 determines the equilibrium wage in a labour market?
The intersection of labour supply and labour demand.
what determines wage and employment in a perfectly competitive labour market?
Intersection of labour supply and demand.
what does imperfect labour market mean?
Real markets often face rigidities and slow adjustments to changes in demand/supply.
what does the backward-bending labour supply curve represent?
Substitution effect and income effect on hours worked.
what happens when labour demand increases?
Wage and employment both increase.
what happens when labour supply increases inelasticly?
Wage rate changes significantly; smaller employment effect.
what happens when labour supply increases?
Wage falls but employment increases.
what is derived demand in the context of labour?
Labour is demanded for the goods/services it helps produce, not for itself.
what is the main factor determining labour cost?
Wages and productivity.
