Chapter 6 Flashcards
What is the labour market
Essentially the price theory of goods of an economy operating in the labour market
Who is the supply and demand in labour markets
Supply: households
Demand: firms
Why is labour derived demand
Because a firm only demands labour for the profit the product of labour produces.
‘Wanted not for it’s own sake, but as a consequence for something else’
Define marginal labour productivity
The addition to a firms total output brought about by employing one more worker
Marginal physical product of labour is another word for …
Marginal returns (product) of labour
Draw the marginal physical product of labour
…
Define marginal revenue product of labour
Money value added to a firms total output brought about by employing one or more worker
How can the marginal physical product of labour be converted into the marginal revenue product of labour
Marginal physical produced X Marginal revenue = Marginal revenue product
In a perfectly competitive labour market what does MR equal to
AR and Price
What does the demand curve show in labour markets
The relationship between wage rate and number of workers employed
Explain how wage rate effects number of workers employed
Lower the wage the more employed
What shifts market demand curve for labour in labour markets (Why demand changes)
-Change in technology
Substitute labour for other factors
Increase the demand of certain expertise
-Change in productivity
When is labour inelastic
- Wage only forms a small part of production cost
- Demand for good or service being produced is inelastic
- Difficult to substitute other factors
Draw the market supply of labour
…
What are the two factors a worker needs to consider to maximise net advantage
- Supplying labour
- Enjoying leisure time
Explain utility welfare of money and leisure
Utility or welfare from the last unit of money earned = utility or welfare from the last unit of leisure time sacrificied
What shifts the market supply curve of labour
- Changes in income
- Changes in population
- Changes in expectations (less optimistic about future pensions)
What affects elasticity of supply of labour
- Supply of unskilled is much more elastic than skilled
- Factors reducing occupational and geographical immobility reduce elasticity
- Elastic more in LR than SR
- Availability of unemployed increases elasticity
Define perfectly competitive labour market
Just like normal market but includes labour
Draw labour market perfect competition with ruining market wage price
…
What is the maximisation of profit in labour markets
Addition to sales revenue resulting from employment=addition of cost for employing extra worker
Why does MRP = W
Because it is like MR=D or P
If
MRP>W
MRP
More workers should be hired
Less workers should be hired
Define Monopsony
One buyer in a market
Define monopsony power
Marker power exercised in a market home the buyer of a good or service factor
Example of monopsony
Arguably military
Why does MC not equal AC
Because to employ additional workers more money must be provided, so all individuals will have to be paid more
Draw the determination of wage rate and level of employment in monopsony labour market
…
Reasons for wage differences
- Disequilibrium trading (constantly changing markets)
- Imperfect market competition
- Occupational immobility of labour
- Geographic immobility of labour
- Discrimination
What can influence wage
Trade union
Define trade union
Group of workers who join together to maintain and improve their conditions of employment, including pay
Define collective bargaining
A process by which wage rates and other conditions of work are negotiated and agreed upon by unions and an employer
What is the argument against unions
Cause unemployment
What is the opposite argument for trade unions causing unemployment
They increase income, causing an increase of disposable income so overall AD is increased
Draw a trade union shifting the market supply curve of labour
…
Draw the introduction of a trade union in monopsony power
…
Define national minimum wage
Minimum wage rate that must be paid by law
Advantages of minimum wage rate
- Prevents exploitation
- Decreases poverty
- Middle groups between trade union and individuals
Disadvantages of minimum wage
- Reduced working hours
- Effects those that are young
Define wage discrimination
Paying different workers different wage rates for doing the same job
Draw wage discrimination
…
What is necessary for wage discrimination to occur
Different identifiable groups
Types of wage discrimination
- Gender
- Race
Explain Gender discrimination
- Gender pay gap at 14.1%
- Women are twice as likely to receive lowest pay
- Woken work predominantly low paid jobs
- Discrimination
- Experience less in women due to children
Explain how gender discrimination in one market effects another market
A decrease in women employed causes an increase in supply of women willing to work in another
Draw how gender discrimination effects other labour markets
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