Labour market Flashcards
What’s Marginal Revenue Product (MRP)?
The revenue produced by taking on 1 extra worker
Decreased revenue as Labour increases
The curve linking wage rates to Labour
Downwards sloping
Marginal Revenue Product = Marginal physical product (product made by one extra labour) x price of product
Why is the MRP curve downward sloping?
In the short run, an extra worker is likely to produce less due to law of diminishing returns
Its the demand curve of firms
- so the higher the price of labour, the lower Q they will employ
What’s marginal physical product (MPP)?
The product made by one extra labour
Change in output produced by employing one more variable input
What’s the 2 causes MRP to shift?
As MRP = MPP x P
If price of the product changes, then it will shift
If workers produce a different Q for an extra worker, it will shift
What affects the elasticity of demand of labour?
Time
- easier to employ over a long period of time
Availability of substitutes
Elasticity of demand of product
Proportion of labour to total costs
What are unit labour costs?
Cost of labour per unit of output
What’s the neo-classical theory?
A broad theory suggesting supply and demand is the driving focus behind production, pricing and consumption
What’s the backward bending supply curve?
A supply curve that represents a persons hour rates if work when their wage changes
Bends backwards due to high substitution effect
Why is work arguably an inferior good?
The higher the income, the fewer the hours an individual wishes to work
- why buy a lambo when you have no time to use it?
What is the income effect?
As wages go up income goes up as well
- in this case, income effect is positive
Positive at bottom, but goes negative when gradient goes high and bends back
- as income will decrease
What is the substitution effect?
As wages rise, the opportunity cost of leisure time increases
Always positive
What is the wage effect?
The higher the wage leads to ore hours worked
Positive when hours go up
Negative when bends backwards
What are pecuniary considerations?
Considerations involving money
What’s the supply curve for labour?
A straight curve upward sloping
As real wage rates increase, there is more labour supplied by the economy
Doesn’t mean they will work more hours at high prices
- but theres a lot more attraction
What affects the elasticity of supply of labour?
Availability of suitable labour in other industries
Time period
- less elastic in short run, but higher in long run
- as recruiting takes time
Level of unemployment and underemployment in economy
- higher the level, the more elastic as there’s more people who will take the job
