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Labor Economics > Chapter 2 Labor Demand > Flashcards

Chapter 2 Labor Demand Flashcards

1
Q

are business organizations that employ resources to produce goods or services for the market.

A

Firms

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2
Q

Why do firms demand for labor

A

Firms demand labor primarily to produce goods or provide services

Labor also provides value to companies through their
work, which allows companies to earn money and make profit.

Labor is a critical input in the production process, and firms require workers to perform various tasks to produce, distribute, and sell their goods or services

Firms seek to hire workers to maximize productivity,
increase output, meet consumer demand, and ultimately generate profits.

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3
Q

Define labor demand

A

Labor demand is the amount of labor that the employers are willing and able to hire at a particular wage rate during a given time period in a given market or industry

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4
Q

the quantity of labor services the firm would employ at each wage

A

Amount of Labor

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5
Q
  • the firms, businesses, or organizations seeking to hire labor
A

Employers -

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6
Q
  • he firms, businesses, or organizations seeking to hire labor
A

Willing and able -

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7
Q

desire to meet the firm’s production requirements and capacity to accommodate new
employees

A

Wage Rate

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8
Q

– the type of labor market where firms compete for labor to meet their production needs

A

Market

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9
Q

Labor demand is derived from the __________produced by workers and other factors that affect a firm’s decision to hire more employees

A

demand for goods and
services

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10
Q

. The level of demand for labor directly
depends on the _______

A

demand for the goods or services those workers will produce.

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11
Q

describes the inverse relationship between the wage rate and the quantity of labor
demanded.

A

Labor Demand curve

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12
Q

A _____________indicates that employers will be willing and able to hire more workers at
lower wage rates than at higher wage rates, ceteris paribus

A

downward sloping demand curve

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13
Q

negative relationship between the wage and the quantity of labor demanded is the result of two effects:

A

substitution effect and scale effect.

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14
Q

is the change in the quantity of labor demanded by firms due to the relative price
changes between labor and other factors of production.

A

Substitution effect

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15
Q

When the price of labor (wages) increases, firms
might substitute capital (e.g., machines, automation) for workers. This substitution keeps production costs
down

A

Substitution effect

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16
Q

considers how changes in the wage rate impact overall
production or output levels.

A

scale effect

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17
Q

when wages increase, the cost of production goes up, potentially causing firms
to decrease the overall scale of production. This decrease in output would also lead to a decrease in labor
demand.

A

scale effect

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18
Q

is caused by the change in the wage rate.

A

Change in quantity labor demanded

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19
Q

Graphically, a movement
along a demand curve reflects the effect of a change in wage rate on the quantity of labor demanded.

A

Change in quantity labor demanded

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20
Q

indicates the total number of workers all firms in a labor market want to
employ at each wage rate. It is found by horizontally summing across all firms’ individual labor demand
curves.

A

market labor demand curve

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21
Q

it is found by horizontally summing across all firms’ individual labor demand
curves.

A

market labor demand curve

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22
Q

is brought by factors other than a change in the wage rate which causes firms to
demand more or less labor.

A

Change in labor demand

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23
Q

Graphically, the shift of the labor demand curve depicts the change in nonwage determinants.

A

Change in labor demand

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24
Q

Non-wage Determinants of Labor Demand

A

Product demand
▪ Productivity
▪ Technology
▪ Non-wage Costs
▪ Numbers of Firms (Employers)
▪ Profitability
▪ Prices of Another Inputs
▪ Labor Unions
▪ Taxes and Subsidies

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25
m is a major driver of labor demand.
The demand for goods and services produced by a firm
26
When consumer demand increases, firms may need to hire (less or more ) workers to meet production and demands.
hire more workers
27
If labor productivity increases, firms will demand (less or more) labor at each wage rate and the firm’s demand for labor itself will increase.
demand more labor
28
When many firms in a labor market acquire a new technology, the market labor demand curve will _________ if the technology is complementary with labor
shift rightward
29
When many firms in a labor market acquire a new technology, the market labor demand curve will ________if the technology is substitute for labor
shift leftward
30
are costs that do not directly vary with the number of hours worked by the worker. These include hiring costs, training costs, and employee benefits
Non-wage labor costs.
31
A rise in non-wage labor costs will shift the market labor demand curve __________
leftward.
32
A fall in non-wage labor cost will shift the market labor demand curve _________
right.
33
The entry of new firms will shift the market labor demand curve __________ and exit will shift the curve to the__________
rightward, left.
34
If a company's profitability rises, it will be able to recruit additional employees. This will result in ___________
an increase in labor demand.
35
When the price of some other input decreases, the market labor demand curve may shift rightward or leftward. It will shift rightward if that other input is _____________ with labor and leftward if the other input is ______________for labor.
complementary, substitutable
36
is a worker association that bargains with employers over wages, benefits, and working conditions
Labor Union
37
It is always viewed that firm as an economic decision maker, is striving to __________
maximize profit
38
The firm faces three constraints as it decides how much labor to employ
1. Its technology determines how much output the firm can produce with each quantity of labor. 2. The market price in its product market tells the firm how much it can sell its output for. 3. The market wage rate in its labor market tells the firm how much it must pay each worker.
39
is the additional revenue generated by employing an additional factor unit, such as one more unit of labor. In other words, MRP of labor is the change in total revenue from hiring one more worker.
Marginal Revenue Product (MRP
40
Mathematically, MRP is calculated by
𝑀𝑅𝑃 = ∆𝑇𝑅/∆ 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝐿𝑎𝑏𝑜r
41
Firms, aiming to maximize profit, will hire workers up to the point where
the wage rate equals the MRP of the last worker hired.
42
To maximize profit, the firm should hire the number of workers such that
𝑀𝑅𝑃 = 𝑊.
43
shows the relationship between inputs and outputs. It specifies how much output is produced by any combination of labor and capital
production function
44
The total product for a firm in the short run is:
𝑄 = 𝑓(𝐾, 𝐿), where K is fixed.
45
depicts the relationship between the quantity of labor employed (input) and the total output produced (output) by the firm, holding all other factors of production constant.
Total product
46
represents the additional output produced by each additional unit of labor input, while holding all other inputs constant.
Marginal product
47
It represents the rate of change in total output with respect to changes in labor input. Initially, the marginal product of labor tends to increase as more workers are hired, reflecting the benefits of specialization.
Marginal product
48
curve shows the average output produced per unit of labor input, calculated by dividing total output by the quantity of labor employed.
Average product
49
It provides insights into the productivity of labor on average within the production process.
Average product
50
Stages of Production
Stage 1 (Increasing Returns to Labor) Stage 2 (Diminishing Returns to Labor. Stage 3 (Negative Returns to Labor).
51
As more labor is added, marginal product increases, leading to a rise in total product. This stage is characterized by underutilization of other inputs.
Stage 1 (Increasing Returns to Labor)
52
Characteristics of Stage 1 (Increasing Returns to Labor)
TP increases at an increasing rate. ▪ MP increases and then decreases. ▪ MP is greater than AP. ▪ AP increases and reaches it maximum and has positive
53
Marginal product begins to decline even though total product continues to increase. This stage indicates that additional units of labor are becoming less productive.
Stage 2 (Diminishing Returns to Labor
54
Characteristics of Stage 2 (Diminishing Returns to Labor
TP increases at a decreasing rate and reaches its peak. ▪ MP has a negative slope as it decreases. ▪ MP is less than AP. ▪ AP falls and has still positive slope
55
Marginal product becomes negative, leading to a decrease in total product. This stage occurs when adding more labor actually reduces total output due to overcrowding or inefficiencies.
Stage 3 (Negative Returns to Labor).
56
Characteristics of stage 3
TP begins to decrease and has a negative slope. ▪ MP turns negative and is moving down. ▪ AP continuously falls and now has a negative slope
57
If the wage rate rises, firms will cut back on the labor they hire. How much they cut back depends on the elasticity of demand for labor, which is the percentage change in the quantity demanded of labor divided by the percentage change in the price of labor (the wage rate).
Elasticity of Labor Demand
58
measures the responsiveness of the quantity demanded of labor to the wage rate.
e wage elasticity coefficient
59
) implies that percentage change in quantity labor demanded is greater that percentage change in wage
Elastic labor demand ( 𝑬𝑳 > 𝟏 )
60
implies that percentage change in quantity labor demanded is less than percentage change in wage
Inelastic labor demand ( 𝑬𝑳 < 𝟏 )
61
The relationship between the elasticity of demand for the product and the elasticity of demand for labor is as follows:
The higher the elasticity of demand for the product, the higher the elasticity of demand for the labor that produces the product. ▪ The lower the elasticity of demand for the product, the lower the elasticity of demand for the labor that produces the product.
62
Labor costs are a part of
Total cost
63
Thus, price rises more when labor costs are a larger percentage of total costs. And, of course, the more price rises, the more the quantity demanded of the product falls. Therefore, labor, being a derived demand, is affected more.
Ratio of Labor Costs to Total Costs.
64
Number of Substitute Inputs
The more substitutes for labor, the higher the elasticity of demand for labor. ▪ The fewer substitutes for labor, the lower the elasticity of demand for labor

Labor Economics (5 decks)

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