Labour Market Flashcards
What does the labour market include
Supply of labour by households and the demand for labour by firms
Who is the point of view of suppliers
Workers point of view
What is the point of view for demand
Employers point of view
As with other markets, wage is decided by what combination
Supply and demand
In free markets, wages are determined by what
Supply and demand
In real mixed economies, who can exert influence on supply and demand wage levels
Governments and trade unions
One main factor affecting demand for labour
Wage rates
What happens if there are high wage rates (how does that impact demand for labour)
High wage rates lead to low demand for labour, hence the demand for labour curve slopes downward.
What is “the income and substitutional effect”
At high wages, firms look at substitute capital labour, or cheaper labour for the relatively expensive labour.
Derived demand
It is ultimately based on demand for the product that labour makes.
Marginal revenue product
How much extra money does each extra worker bring in to the firm.
