demand and supply for labour (L9)

Question 1

firm

Answer 1

organisation that brings together the factors of production to produce output with labour being a key one

Question 2

derived demand

Answer 2

labour is an example- firms don’t want labour fr their own sake but they need it to get revenue from selling output that labour produces

Question 3

factors that can shift the demand curve for labour

Answer 3

PGCD
changes in:
productivity of labour
price of the good labour produces
demand of the good
price of capital

Question 4

changes in productivity of labour

Answer 4

if labour is more productive, it’s demanded more since it’s a derived demand

Question 5

changes in price of the good labour produces

Answer 5

if price of the good increases, firms increase production so more inputs of production are needed such as labour

Question 6

changes in demand of the good

Answer 6

demand of good increases, more workers will be needed- usually happens when the economy is in a boom/ change in consumer preference

Question 7

changes in price of capital

Answer 7

if capital becomes more expensive, firms would just hire more workers instead and vice versa, there are many low skilled workers in developing countries so they won’t have as many firms specialising in capital intensive processes.

Question 8

explain the backward bending individual labour supply curve

Answer 8

V rotated 90 degrees anticlockwise
at lower wages the substitution effect is stronger where workers will work longer hours to earn enough to consume more goods etc so leisure becomes an opportunity cost, but at a certain wage the real income effect encourages workers to demand more leisure so they’ll supply less labour.

Question 9

what else can influence labour supply and how?

Answer 9

job satisfaction

firms may provide non-pecuniary/fringe benefits that aren’t fully reflected in wages like subsidised canteen

Question 10

what do wages act as for workers?

Answer 10

a signal for what industries are offering the best returns to work

Question 11

how does the labour supply curve look and what factors influence its position?

Answer 11

curve that slowly gets steeper as wages increase looks like exponential graph sideways.
size of working age population, wages on offer in substitute occupations, barrier to entry

Question 12

size of working age population

Answer 12

larger working age population=higher participation rate =greater industry labour supply curve

Question 13

wages on offer in substitute occupations

Answer 13

some occupations can have transferable skills that you could use in other jobs eg retail to hospitality so if wage rates change, it’s more likely for some workers to switch

Question 14

barriers to entry

Answer 14

jobs with higher qualifications needed increase the barriers to entry so the labour supply falls. the greater the benefits the more willing people are to work that job

Question 15

overtime

Answer 15

lets them increase income which can be very valuable to some= more willing to work in that occupation if its available

Question 16

supply and demand curve for the labour market equilibrium

Answer 16

looks like a bow and arrow, supply straight up demand is a curve. if wages risein a market and workers move from one industry to this one, there’s a long term shift to the right of the labour supply curve and in the free market it continues until wage differentials are no longer sufficient to encourage workers to transfer.