Chapter 6

Question 1

What is derived demand

Answer 1

Demand for a good or factor of production wanted not for its own sake, but as a consequence of the demand for something else

Question 2

What is marginal physical product of labour

Answer 2

The addition to a firms total output brought about by employing one more worker

Question 3

What is the marginal revenue product of labour

Answer 3

The money value of the addition to a firms total output brought about by employing one more worker

Question 4

What is the elasticity of demand for labour

Answer 4

Proportionate change in demand for labour following a change in the wage rate. The elasticity can be calculated by using the following formula

Proportionate change in quantity of labour demanded /
Proportionate change in wage rate

Question 5

What is elasticity of supply of labour

Answer 5

Proportionate change in the supply of labour following a change in the wage rate.

Proportionate change in quantity of labour supplied /
Proportionate change in the wage rate

Question 6

What is average cost of labour

Answer 6

Total wage costs divided by the number of workers employed

Question 7

What is marginal cost of labour

Answer 7

The addition to a firms total cost of production resulting from employing one more worker

Question 8

What is a monopsony

Answer 8

There is only one buyer in a market

Question 9

What is monopsony power

Answer 9

The market power exercised in a market by the buyer of a good or the services of a factor of production such as labour even though the firm is not a pure monopsonist

Question 10

What is the occupational immobility of labour

Answer 10

When workers are unwilling or unable to move from one type of job to another e.g because different skills are needed

Question 11

What is geographical immobility of labour

Answer 11

When workers are unwilling or unable to move from one area to another in search of work

Question 12

What is a trade Union

Answer 12

A group of workers who join together to maintain and improve their conditions of employment including the pay

Question 13

What is collective bargaining

Answer 13

A process by which wage rates and other conditions of work are negotiated and agreed upon by a union or unions with an employer or employers

Question 14

What is national minimum wage

Answer 14

A minimum wage or wage rate that must be paid by law psi to employees though in many labour markets the wage rate paid by employers is above the national minimum wage

Question 15

What is price discrimination

Answer 15

Paying different workers different wage rates for doing the same job

Question 16

Why would there be a shift of the demand curve of labour?

Answer 16

• a change in labour productivity
• a change in technology, can shift left if technical progress causes firms to substitute labour for capital or shift right if if technical progress make labour more productive in relation to other factors of production

Question 17

When is demand for labour likely to be relatively inelastic?

Answer 17

• when the relative wage cost only forms a small part of total production costs
• when the demand for a good or service is inelastic
• when it it is difficult to substitute other factors of production in for labour
• in the short run

Question 18

Factors that effect the supply curve of labour?

Answer 18

• money wage rate
• utility or economic welfare derived from aspects of working -non-monetary benefits
• changes in income
• changes in population
• changes in expectations, e.g less optimistics about future income

Question 19

What factors determine wages elasticity of supply of labour?

Answer 19

• supply of unskilled labour is usually more elastic than then supply of a particular type of skilled labour
• factors which reduce the occupational and geographical mobility of labour
• supply of labour is likely to be more elastic in the long term
• availability of a pool of unemployed labour increases elasticity

Question 20

In imperfectly competitive labour markets wage differences in different labour markets are often substantial. reasons for this are:

Answer 20

• Disequilibrium trading, economies are subject to constant change, and labour markets are usually in disequilibrium
• imperfect market information, workers sometimes lack accurate information on rates of pay. Imperfect market information also contributes to occupational and geographical immobility of labour
• discrimination

Question 21

What are the advantages of the national minimum wage?

Answer 21

• less government support is necessary
• higher motivation of workers
• better working quality
• better chances to get out of poverty

Question 22

What are the disadvantages of the national minimum wage?

Answer 22

• higher labour costs for companies
• loss of competitiveness
• replacement of workers with machines
• higher unemployment

Question 23

What several reasons may there be why women earn less than men?

Answer 23

• work predominantly in low paid industries
• discrimination against women in labour markets
• attachment to the labour force is weaker
• higher labour turnover of women also imposes costs on the employer