Labour markets Flashcards

1
Q

What type of demand is the demand for inputs?

A

Derived demand

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2
Q

What are key inputs into the production proccess?

A

Land

Labour

Capital

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3
Q

Describe the key inputs in the production process

A
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4
Q

What are inputs either?

A

Fixed or variable

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5
Q

What is a fixed input?

A

fixed—that is, cannot change in the short run (e.g., machinery)

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6
Q

What is a variable input?

A

variable —that is, can change in the short run (e.g. labour)

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7
Q

What occurs when a firm tries to increase output by applying additional variable inputs to a fixed factor in the short run?

A

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.

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8
Q

In the long run to increase output and counteract diminishing returns what can occur?

A

In the long run, capital can be used to replace labour.

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9
Q

What are the main costs of working for the worker

A
  • the worker must sacrifice leisure
  • the work may be unpleasant, challenging, boring or dangerous etc
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10
Q

What does an extra hour of work involve for the worker?

A
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11
Q

Why can the supply curve of labour also bend backwards, diagram

A
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12
Q

The labour supply faced by an individual employer depends on market structure:

A
  • If employer is a wage taker, the supply curve will be perfectly elastic,
  • If employer is a wage maker, it will be upward sloping.
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13
Q

How does the market supply curve usually slope, describe the meaning

A
  • The market labour supply curve is usually upward sloping: the higher the wage,

the more the hours worked.

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14
Q

What does the position of the curve depend on?

A

The position of the curve depends on:
# of qualified people,
non-wage benefits/costs of job & other jobs

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15
Q

What does the responsiveness of the supply of labour to the change in wages (elastcitiy) depend on?

A

(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

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16
Q

What is the marginal input rule?

A

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)

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17
Q

Explain the marginal input rule

A

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

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18
Q

If MRPL > MCL, then…

A

employing one more unit increases TR more than TC

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19
Q

What is the equation for the marginal revenue product of labour?

A

The marginal revenue product of labour is given by:
MRPL = MR x MPPL (marginal revenue x marginal physical product of labour)

where MPPL is how much output the extra unit of labour produces

20
Q

WHat is the equation for the maringal input rule?

A
MRPL = MR x MPPL = MCL
MR = MCL / MPPL
21
Q

What is MCL / MPPL ?

A

It is the extra cost of producing one of those units of output: MCL / MPPL = MC MR = MCL / MPPL = MC

22
Q

Marginal input rule & marginal output rule are effectively what?

A

the same

23
Q

Diagram to show the marginal physical product of labour

A
24
Q

What are the assumptions for a perfectly competitive labour market?

A

A(1): Buyers of labour (firms) operate in a perfectly competitive output market

A(2): Buyers of labour (firms) are wage takers in the labour (input) market

A(3): Both buyers and sellers have complete information

A(4) Workers are wage takers

A(5) Entry for workers is ‘free’

25
Q

What does it mean when buyers are price takers in the product market?

A

MRPL = MR x MPPL = p x MPPL

26
Q

What does it mean when buyers are price takers?

A

MCL = w

27
Q

Describe A(1): Buyers of labour (firms) operate in a perfectly competitive output market

A

A(1): Buyers of labour (firms) operate in a perfectly competitive output market

The price for the output is taken as given

They believe that they can sell as much of their output as they want at the going price without affecting that price, so p = MR

When buyers are price takers in the product market, MRPL = MR x MPPL = p x MPPL

28
Q

Describe A(2): Buyers of labour (firms) are wage takers in the labour (input) market

A

A(2): Buyers of labour (firms) are wage takers in the labour (input) market

Each firm takes the wage rate as given

They believe that they can employ as much labour as they want at the going wage rate without having an effect on that wage rate

When buyers are wage takers, MCL = w

29
Q

Describe A(3): Both buyers and sellers have complete information

A

A(3): Both buyers and sellers have complete information
Workers are aware of available jobs and know the conditions of employment Employers know the amount of labour available and how productive it is

30
Q

Describe A(4): Workers are wage takers

A

A(4): Workers are wage takers

Each worker believes how much labour he/she supplies will not affect the market price.

This has two parts to it:
(a) a worker can supply as much as labour he/she wants, at a given wage(b) a worker’s supply choice leads to no reaction from other workers

31
Q

Describe A(5): Entry for workers is ‘free’

A

A(5): Entry for workers is ‘free’

A potential worker can enter the market without incurring costs that an incumbent worker would not incur

No restrictions on the movement of labour
No barriers from unions or government
Entry is often assumed to a long-run decision
It takes time for workers to become educated, relocate, change jobs

32
Q

What si the appropriate market structure?

A
33
Q

Show the profit maximising position of an individual curve

A
34
Q

When is the market in equilibrium in the short run?

A

(a) Buyers of labour (firms) choose optimal employment levels, given market wage
(b) Sellers of labour (workers) choose optimal supply levels, given market wage
(c) Sellers supply as much as buyers want to purchase,

Buyers purchase as much as sellers choose to supply

35
Q

What do the market equilbrium in the labour market characteristics imply?

A

(1) The price in the product market is determined by supply and demand
(2) The market wage is determined by market supply & demand
(3) A seller’s output is determined seller-specific supply & demand

36
Q

What is the price in the product market determined by?

A

Supply and demand

37
Q

What is the market wage determined by?

A

market Supply and demand

38
Q

What is a sellers output determined by?

A

sller -specific Supply and demand

39
Q

Summary notes for the perfect labour market

A
40
Q

Diagrams for the short run equilibrium of the perfect labour market

A
41
Q

When are labour markets imperfect?

A

Labour markets are imperfect when employees and/or employers are wage maker

42
Q

What are wage making employers?

A

Wage making employers: when there is only one employer of a certain type of labour (monopsony) or few of them (oligopsony).

e.g., Royal Mail is a monopsony employer of postal workers.

43
Q

What are wage making employees?

A

Wage making employees: when they have a unique talent or when they create a union & threaten industrial action if demands not met.

44
Q

What happens when a monopsony faces a monopolist union?

A

If a monopsony employer faces a monopolist union, it refers to a bilateral monopoly.

45
Q
A