Labour Market Forces And Government Intervention Flashcards
Q: What is derived demand for labour?
A: Labour demand is derived from the demand for the output that labour produces. When firms see increasing demand for their products, they need to employ extra workers, thus increasing the demand for labour.
Q: What is Marginal Revenue Product of Labour (MRPL)?
A: MRPL is a theory where workers are paid the value of their marginal revenue product to the firm. It measures the change in total output × revenue for a firm as a result of selling the extra output produced by additional workers employed.
Q: What are the key assumptions of the MRPL theory?
A:
Workers are homogeneous in terms of ability and productivity.
Firms have no monopsony power.
There are no trade unions.
Worker productivity can be clearly measured.
Industry supply of labour is perfectly elastic.
Workers are occupationally and geographically mobile.
Q: What happens to labour demand when wages fall?
A: When the wage rate falls, the firm will expand employment because labour has become relatively cheaper compared to other inputs
Q: What happens to labour demand when wages rise?
A: When the wage rate rises, the firm will contract employment because labour has become relatively more expensive compared to other inputs.
Q: What is the profit-maximizing condition for labour employment?
A: The profit-maximizing condition is where the Marginal Revenue Product of Labour (MRPL) equals the Marginal Cost of Labour (MCL
Q: What is the backward-bending supply curve of labour?
A: The backward-bending supply curve illustrates that at higher real wages, workers might supply fewer hours of work, choosing instead to enjoy more leisure time.
Q: What factors influence the supply of labour to a particular industry?
A:
Real wage rate in the industry.
Opportunities for overtime and productivity-related pay.
Real wage rate in competing occupations.
Artificial limits to labour supply (e.g., minimum entry requirements).
Non-pecuniary benefits like job security, promotion opportunities, and in-work training.
Q: What factors cause wages to be rigid and not fall easily?
Strong trade unions.
Employers’ reluctance to hire cheaper but less skilled labour.
The intrinsic value of a job.
Government-imposed minimum wages.
Over-generous welfare benefits.
Q: How do trade unions influence wage determination?
A: Trade unions can use collective bargaining to negotiate higher wages, better working conditions, and other benefits for their members. They may also operate a closed shop agreement to control labour supply.
Q: What is a monopsony in the labour market?
A: A monopsony occurs when there is a single or dominant buyer of labour, allowing the employer to determine the wage rate due to their buying power.
Q: What is economic rent in the context of labour?
A: Economic rent is the payment to labour in excess of their transfer earnings. It is the area above the labour supply curve and below the market wage rate.
Q: What are transfer earnings?
A: Transfer earnings are the minimum reward required to keep labour in its present occupation. They are shown by the area under the labour supply curve.
Q: How does the elasticity of labour supply affect economic rent and transfer earnings?
A:
Inelastic labour supply: Higher proportion of total earnings is economic rent.
Elastic labour supply: Higher proportion of total earnings is transfer earnings.
