Labour markets Flashcards
What type of demand is the demand for inputs?
Derived demand
What are key inputs into the production proccess?
Land
Labour
Capital
Describe the key inputs in the production process
What are inputs either?
Fixed or variable
What is a fixed input?
fixed—that is, cannot change in the short run (e.g., machinery)
What is a variable input?
variable —that is, can change in the short run (e.g. labour)
What occurs when a firm tries to increase output by applying additional variable inputs to a fixed factor in the short run?
In the short run, the law of diminishing returns comes into play whenever a firm tries to increase output by applying additional variable inputs to a fixed factor. If a firm increases the number of variable factors they use, such as labour, while keeping one factor fixed, such as machinery, the extra output or returns from each additional, marginal unit of the variable factor must eventually diminish.
In the long run to increase output and counteract diminishing returns what can occur?
In the long run, capital can be used to replace labour.
What are the main costs of working for the worker
- the worker must sacrifice leisure
- the work may be unpleasant, challenging, boring or dangerous etc
What does an extra hour of work involve for the worker?
Why can the supply curve of labour also bend backwards, diagram
The labour supply faced by an individual employer depends on market structure:
- If employer is a wage taker, the supply curve will be perfectly elastic,
- If employer is a wage maker, it will be upward sloping.
How does the market supply curve usually slope, describe the meaning
- The market labour supply curve is usually upward sloping: the higher the wage,
the more the hours worked.
What does the position of the curve depend on?
The position of the curve depends on:
# of qualified people,
non-wage benefits/costs of job & other jobs
What does the responsiveness of the supply of labour to the change in wages (elastcitiy) depend on?
(a) difficulty to change jobs
(b) whether we’re in the long- or short-run
Wages will increase more with demand if supply is more inelastic
What is the marginal input rule?
Marginal input rule: as long as the firm does not shut down, a firm should employ the number of units of labour such that he can maximise his profit where:
(marginal revenue product of labour) MRPL = MCL (marginal cost of labour)
Explain the marginal input rule
MRPL is the change in TR due to employing one more unit of labour MCL is the change in TC due to employing one more unit of labour
If MRPL > MCL, then employing one more unit increases TR more than TC
If MRPL > MCL, then…
employing one more unit increases TR more than TC