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A2 : Microeconomics > Labour Demand, Supply and Wage Determination > Flashcards

Labour Demand, Supply and Wage Determination Flashcards

1
Q

LDMR

A

As each unit of a variable factor is increased to a fixed factor, output increases at first, then it will decrease and become negative, due to the restraints of that factor.

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2
Q

Marginal Product

A

The change in total product from employing one more variable factor.

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3
Q

Derived Demand

A

Demand for one item depending on the demand for another. Labour depends upon the revenue gained from what is being produced.

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4
Q

Show Derived Demand

A

Supply and demand, increasing quantity from Q1 to Q2. Increased demand needs labour to meet it.

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5
Q

MRP

A

Change in a firms revenue from employing one more worker.

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6
Q

MRP Labour Required

A

Labour determined where the cost of employing one more worker equals the MRP of the worker.

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7
Q

Show MRP

A

MRP - diminishing returns, where the MCL=MRP

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8
Q

Why employ at MRP

A

Not efficient to produce less and if they employed more the cost of workers would exceed the MRP of the worker. If MCL > MRPL makes a loss, profit maximisers won’t hire.

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9
Q

Capital MRP

A

Complementary to workers. Increases productivity cause ↑ in MPP, ↑ MRP, therefore it will require more workers in order to meet the MRP ↑ the demand for workers.

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10
Q

Evaluation of MRP

A

Difficult to calculate the contribution of one worker, very difficult in tertiary sector 1 brain transplant vs 10 patients seen to.

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11
Q

Elasticity Demand for Labour Equation

A

% change in labour demanded

% change in wage rate

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12
Q

Price Elasticity of Product (Lab)

A

If demand is inelastic, the demand for the labour likely to be inelastic. Rise in the price of product that results from the rise in the wage rate won’t effect output much, so employment will not fall much

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13
Q

Ease of substituted labour

A

If it’s easy to substitute labour with capital, then demand for labour will be elastic. The skill level required.

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14
Q

The elasticity of supply of other factors

A

If it is easy to obtain more of the factors that are used alongside labour, demand for labour will be elastic

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15
Q

The time period - elasticity

A

Demand for labour is more elastic in the long run, when there is time for firms to reorganise their production methods.

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16
Q

SR Labour Supply Curve

A

Backwards bending, as in the short run people don’t have time to change occupation.

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17
Q

SR LabSupCur Explain

A

SR influence - wage-rate. Low wage, rise in wage causes worker work ↑ (extension in supply of labour) Offer of high wages worker works ↓ (contraction in the supply of labour) Workers income meets financial needs, want more leisure.

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18
Q

Income effect

A

The income effect states that a higher wage means workers can achieve a target income by working less hours. Therefore, because it is easier to get enough money they work less.

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19
Q

Substitution effect

A

The Substitution effect states that a higher wage makes work more attractive than leisure. Therefore, supply increases.

20
Q

Pecuniary Factors

A

Wage rate and the opportunity of bonus’s and working overtime.

21
Q

Non Pecuniary Factors

A

Non monetary advantages/disadvantages of doing a job.

22
Q

Elasticity Supply of Labour

A

How the supply of labour changes as a result of a change in the wage rate.

23
Q

Elast Sup Lab Determin

A

The qualifications/skills required - The supply of skilled workers is more inelastic than unskilled
Length of training - Longer training more inelastic supply. Mobility - Ease workers moving, the more elastic supply.

24
Q

Demand High Wage Reason

A

Demand is inelastic in the SR, rise in the wage rate won’t attract many new brain surgeons.
High MRP, no substitute brain surgeons in operating teams.

25
Q

Demand Low Wage Reason

A

Supply high and elastic, no qualifications, large number of people capable. A rise in the wage rate will attract an extension in supply. MRP is low, so demand is low.

26
Q

Bargaining Power

A

Brain surgeons members of BMA, industrial action, significant consequences, brain surgeons cannot be replaced easily by capital. Waiters have low bargaining power, as few belong to a trade union, replaced easily.

27
Q

Economic Rent

A

The surplus over transfer earnings, and so is: (total earnings – transfer earnings)

28
Q

Transfer payments

A

What a worker could earn in their best paid alternative employment – the opportunity cost of performing the current job

29
Q

Unit Labour Costs (ULC)

A

The cost of labour per unit of output.

30
Q

Impact of high ULC

A

Higher inflation from cost push, as cost of production increases. Reduced international competitiveness, as prices rise.

31
Q

Unit labour costs will rise when…

A

wages rise faster than the annual improvement in productivity

32
Q

Productivity and ULC

A

ULC is determined by the cost of labour for the output, if productivity increased the workers will produce more, for the same labour wage, more product is spread over cost, reducing ULC.

33
Q

MRP Determinant of Wage Demand

A

How much labour will be employed at each wage rate by a profit maximising firm in a competitive market. MRP gives demand for labour, D/S determine price MRP a significant determinant. MRP changes D does and wage rate changes.

34
Q

MRP Determinant of Wage Supply

A

Wage changes in response to MRP, change dependant on PES. MRP not only determinant. S crosses D determines wage. S affected by non/pencuniary, shift S to effect wage. Inelastic S and High D, wages are high.

35
Q

MRP Market Structure

A

If market is monopolistic MRP is likely to determine employment but S will determine the wage rate.

36
Q

MRP Investment

A

Increase in MRP by Investment leads to substitution of Capital for labour and lower wages so higher MRP not leading to higher wage.

37
Q

Monopsony Definition

A

They are the sole buyer of labour in the market and can exploit their bargaining power to reduce costs.

38
Q

Monopsony Diagram

A

MRP=D to show value of employer, S=AC individuals supply more labour wage rises, MCL. MCL=MRP wage set by Supply .

39
Q

Monopsony Wage Rule

A

Choose the quantity of labour where the MCL = MRP. If above inefficient, spending more on labour than the value of the labour. If below MRP>MCL can hire more labour.

40
Q

Monopsony Trade Union

A

Trade Union increase wage, creates new supply curve at A,B,C, but MCL curve is above requiring a discontinuity, so new MCL is A,B,D,E.

41
Q

Monopsony Trade Union Wage Rule

A

If the Union went for Wu>We>(MCL=MRP) they went for money over jobs.

42
Q

Geo Immo of Labour Definition

A

The level of freedom that workers have to relocate in order to be able to find employment.

43
Q

Occu Immo of Labour Definition

A

The ease to which workers can switch career fields in order to find employment.

44
Q

Elasticity Dem Lab AS WAGES RISE

A

S ubstitutability of capital for labour - Wages rise, capital
E lasticity of D for the product - Inelastic pass on cost
C ost as a percentage of total cost - High employ less
T ime period - LR elastic time to change factors variable

45
Q

Labour Market flexibility

A

Ease to which people can move in order to match excess demand. Geo - Subsidies/affordable homes Occu - Training + education.

46
Q

Lorenz Curve / Gini coefficient Definition

A

Illustrates the extent of income and wealth inequality in a society. Gini used to make international comparisons.

47
Q

Lorenz Curve Explain

A

Percentage of income Y axis
Percentage of population X axis
Shows how far from being perfectly equal, not straight lower groups don’t earn as much. Governments can use progressive taxation and amount of benefits paid.

A2 : Microeconomics (7 decks)

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