Chapter 11 and 12: The Labour Market and Wages Flashcards
Supply and Demand in the Labour Market
workers are the suppliers (upward curve), and employes are the buyers (downward curve).
Cost-Benefit Principle for Labour
the marginal cost of one extra worker is their WAGE. your marginal benefit is now whatever extra revenue you make by hiring one more person
Marginal Revenue Product
the marginal product (of labour) x price of ___ product (for example, 25 haircuts x $10.00 = $250.00 total revenue)
Rational Rule for Employers/Buyers of Labour
hire until the marginal revenue product = worker wage
Individual Labour Supply Curve
measures what happens when wages RISE.
Substitution Effect
the opportunity cost of one hour of leisure INCREASES when wage rises
Income Effect
the choosing of leisure over work DECREASES when wages rise
Perfectly Vertical Individual Labour Supply Curve
indicates that rising wages does not effect your hours worked
Bending Individual Labour Supply Curve
when one effect dominates (either subtitution or income effects)
Factors that Shift the Individual Labour Demand Curve
changes in demand for the product, changes in prices of substitute goods, better management and productivity gains, non-wage benefits, subsidies, and taxes
Signal
a way to convey credible information that is otherwise hard to verify
Efficiency Wage
a higher wage paid to encourage higher worker productivity, also reduces worker turnover
Compensating Differential
differences in wages that are required to offset the undesireable aspects of a job, having to do with the JOB attributes instead of worker attributes
Minimum Wage
a price floor in a labour market, can decrease employment in competitive markets
Monopsony
businesses as buyers who bargain to pay lower prices (wages to workers) in labour markets
