Labour Demand, Supply And Wage Determination

Question 1

Give 5 factors to influence a firms demand for labour

Answer 1

Demand and future demand for products produced
Productivity
Wage rate
Complementary labour costs
Prices of other factors of production

Question 2

What is marginal revenue productivity theory?

Answer 2

The idea that demand for any factor of production is determined by its marginal revenue productivity, and the quantity of a factor employed is where MCL=MRP

Question 3

Draw a MRP and MCL diagram to show effects of a rise in wage on employment

Answer 3

In textbook (p51) and purple book

Question 4

What is marginal revenue product

Answer 4

The change in a firms revenue resulting from employing one more worker

Question 5

What is marginal product of labour?

Answer 5

The change in output that results from employing one more worker?

Question 6

Why is it difficult to measure MRP?

Answer 6

It’s difficult to isolate the contribution one worker makes to changes in output, and difficult to separate contributions of capital and workers

Question 7

Give influencing factors on the elasticity of demand for labour

Answer 7

PED for the product
Proportion of wage costs in total costs
Ease with which labour can be substituted with capital
Time period
Elasticity of supply of complementary factors
Flexibility of labour market

Question 8

How does elasticity of demand for labour vary between age groups and skill groups?

Answer 8

Higher for young and unskilled workers

Question 9

Describe the significance of elasticity of demand for labour

Answer 9

Trade unions have greater bargaining power when representing labour that has Inelastic demand
Government must consider elasticity of d for labour when altering

Question 10

Describe how the number of hours worked changed with the wage rate. What diagram is this illustrated by? Draw

Answer 10

At low wager rates, increases in the wage will result in greater hours worked due to higher incentives
However after a certain wage rate, wage increases will lead to fewer hours worked as the workers financial requirements are met, and they will seek leisure. Shown by backward sloping labour supply curve, p55

Question 11

What are the income and substitution effects of a wage rise?

Answer 11

Income effect is the effect on the supply of labour caused by the change in ability to buy leisure
Substitution effect is the effect on the supply of labour caused by a change in the opportunity costs of leisure

Question 12

What influences the supply of labour to an occupation in the short run?

Answer 12

Wages

Question 13

What influences supply of labour to an occupation in the long run?

Answer 13

The net advantages of the job

Question 14

List the various non-financial factors influencing supply of labour in long run

Answer 14

Convenience and flexibility of hours
Status
Promotion chances
Flexibility of location 
Qualifications and skills
Job security
Pleasantness of job 
Holidays
Perk and fringe benefits
Quantity and quality of training
Location
Recent performance of firm/occupation

Question 15

Define elasticity of supply of labour

Answer 15

Responsiveness of supply of labour to a change in the wage rate

Question 16

List factors influencing the elasticity of supply of labour

Answer 16

Qualifications and skills required
Length of training
Immobility of labour
Time period

Question 17

Give determining factors of wage rates

Answer 17

Demand and supply of that occupation
Relative bargaining power of employers and workers
Government policy
Public opinion

Question 18

In economic terms, why are skilled workers paid more than unskilled workers?

Answer 18

Demand for skilled workers is higher, supply is lower. They have higher MRP, and their work is less substitutable for capital

Question 19

How is demand for labour a derived demand?

Answer 19

It depends on the level of economic activity and demand for certain produce

Question 20

Why do part time workers earn less than full time?

Answer 20

The demand relative to supply is higher due to how convenient part time work is. They also get less on the job training, and are less likely to be in a trade union

Question 21

Draw a diagram to show transfer earnings and economic rent

Answer 21

P63

Question 22

What are transfer earnings?

Answer 22

What a worker could earn in their best paid alternative employment

Question 23

What is economic rent?

Answer 23

A surplus paid to a factor of production above what is needed to keep it in its current occupation

Question 24

How does elasticity of supply influence economic rent and transfer earnings?

Answer 24

The more Inelastic supply is, the more economic rent there will be, eg in high paid jobs that are enjoyable, such as bin men