Labour market Flashcards
How does labour link to derived demand
Labour is an example of derived demand, as it’s purpose derives from a business’ need to produce goods and services
What is marginal physical product
MPP is the additional quantity of goods produced from the additional unit of labour
What is marginal revenue product
MRP is the marginal revenue gain from the additional unit of labour
What is the calculation for MRP
MPP x Selling Price
What does the MRP curve represent
MRP curve represents the demand curve for labour as it shows how many workers will be hired at any given wage rate
Where on the MRP curve will firms firms employ labour
Up to the point where MRP is equal to MCL as this is the point of profit maximisation for labour
What is wage elasticity of demand
How sensitive labour is to changes in wage rates over a given period of time
What does an inelastic wage of elasticity of demand represent
When wages change, a less than proportional change in labour is experienced as the labour is not easily replaceable
What is the supply of labour
Number of people willing to supply their labour services at a given wage rate
What is the substitution effect
As wage rates increase, the opportunity cost of not working increases, thus the workers substitutes leisure for work
What is the labour effect
As wage rates increase, so does ones ability to enjoy leisure thus workers may supply less labour at higher wage rates to enjoy more leisure time
What does an outward shift in labour represent
More people are willing and able to work at a given wage rate
What are the causes of an outward shift in labour
Net inward migration of qualified workers
Low barriers to entry for the job/industry
Fall in relative pay in substitute occupations
What is a monopsony
Where there is a sole or dominant employer in a labour market
What are the consequences to employees of monopsony’s
The employers have buying power which gives them wage-setting power in the labour market
