Labour Demand

Question 1

Who demands labour?

Answer 1

Firms

Question 2

What is the idea of derived demand?

Answer 2

Demand for labour is determined by the demand for 🚘 and 🧹

Question 3

What does the interaction of the demand and supply of labour determine?

Answer 3

Wage rate that labour receives

Question 4

What must you remember when displaying labour demand and supply on a diagram?

Answer 4

Y-axis = wage rate (£/hour)
X-axis = quantity of labour
Industry demand and supply curves drawn as normal straight demand and supply curves
BUT labelled DL1 and SL1 etc (L usually small)

Question 5

State the factors that shift the demand curve for labour

Answer 5

1) Changes in the productivity of labour
2) Changes in the price of the 🚘 labour produces
3) Changes in the demand of the 🚘 labour produces
4) Changes in the price of capital

Question 6

How does the productivity of labour affect the demand for it?

Answer 6

Demand for labour = derived demand (firms demand labour for output that labour produces) … amount of output that labour produces important factor
If labour becomes ⬆️ productive-> ⬆️ demand for labour-> ➡️ward shift
If labour becomes ⬇️ productive-> ⬇️ demand for labour-> ⬅️ward shift

Question 7

How do changes in the price of the 🚘 labour produces affect the demand for labour?

Answer 7

If price of 🚘 or 🧹 labour produces ⬆️-> firms ⬆️
production (profit maximisers)-> ⬆️ demand for labour to expand output
If price of 🚘 or 🧹 labour produces ⬇️-> firms ⬇️ production (profit maximisers)-> ⬇️ demand for labour

Question 8

How do change in the demand of the 🚘 labour produces

affect the demand for labour?

Answer 8

If demand of 🚘 labour produces ⬆️-> ⬆️ demand for labour to meet demand
If demand of 🚘 labour produces ⬇️-> ⬇️ demand for labour as lack of demand

Question 9

How do changes in the price of capital affect the demand for labour?

Answer 9

Firms can substitute labour for capital … if capital becomes ⬆️ expensive-> demand for labour ⬆️
BUT if labour becomes ⬆️ expensive- demand for capital ⬆️
In developed 🌎 - firms specialise in capital-intensive processes because labour is ⬆️ly skilled and expensive
BUT in developing 🌎- labour abundant and lacking in skills … cheaper to employ workers to automate process

Question 10

How does the economic state affect the demand for labour?

Answer 10

When economy growing- demand for labour ⬆️-> ⬆️ employment

When economy ✖️ growing- demand for labour ⬇️-> ⬆️ unemployment