Chapter 10: Wage determination

Question 1

Wage Takers

Answer 1

Competitive labor market…. employers and workers cannot control the market wage rate

Question 2

Employers in competitive labor market

Answer 2

Numerous and compete with one another in hiring a specific type of labor

Question 3

Workers in the competitive labor market:

Answer 3

Many and with identical skills supply a certain type of labor

Question 4

The demand for labor is a derived demand, derived from:

Answer 4

the demand for the products that labor helps produce

Question 5

The strength of labor demand depends on:

Answer 5

The productivity of the labor and the price of the product it helps produce

Question 6

Marginal Revenue Product (MRP)

Answer 6

MRP of labor is the change in a firm’s total revenue when it employs one more unit of labor

Question 7

Formula for MRPlabor

Answer 7

MRPlabor = change in total revenue/ unit change in labor= Pproduct * MPlabor

Question 8

Marginal resource cost (MCR)

Answer 8

MCR of labor measures the addtitional to the total cost due to each additional unit of labor.

Question 9

Formula for MRClabor

Answer 9

MRClabor = change in total cost/ unit change in labor = market wage rate

Question 10

Optimal hiring

Answer 10

MRPlabor = MRClabor

Question 11

Discharge workers

Answer 11

MRPlabor < MRClabor

Question 12

Labor demand shifters:

Answer 12

Change in product demand
Change in productivity
Changes in the price of substitute resources
Changes in price of complementary resources

Question 13

Wage elasticity of labor demanded (formula)

Answer 13

Ew= %change in labor Q demanded/ % change in wage rate

Question 14

Exclusive or Craft Union Model

Answer 14

Boost