Labour markets

Question 1

Labour demand

Answer 1

The amount of workers firms are willing to hire at a given rate

Question 2

Labour demand is what kind of demand

Answer 2

Derived demand

Question 3

Derived demand for labour

Answer 3

Labour is dependent upon the demand for goods and services.

Question 4

Marginal productivity theory

Answer 4

Is the idea that the demand for labour is dependent on the MRP (the financial benefit from employing an additional worker). So it suggests that a firm is willing to pay a worker only what they can contribute (the extra output or profit) to the company’s value.

Question 5

Apply marginal productivity theory to a firm in the SR

Answer 5

Fixed level of capital in SR, so the firm can increase production by hiring workers. Workers can share the capital to help increase production. But as more workers are employed not enough capital can be shared and so only help to increase production by a small amount.

Question 6

Total physical product

Answer 6

Shows the number of goods a firm is able to produce

Question 7

Marginal physical product

Answer 7

Shows how much extra product each worker contribute. MPP usually decreases as more workers are employed

Question 8

If the firm is able to hire a worker for less than their MRP, the firm makes a

Answer 8

Profit

Question 9

MRP : Marginal revenue product shows

Answer 9

The financial benefit of adding one more worker.

Question 10

MRP curve is the….

Answer 10

Labour demand curve

Question 11

MRP is downward sloping so

Answer 11

As the wage rate falls it is worthwhile for each firm to hire more workers

Question 12

Movement along Labour demand curve

Answer 12

Changes in wage rates

Question 13

Focussing only of demand for Labour: if wage rate decreases

Answer 13

Demand for labour increases

Question 14

Focussing on demand for labour when wages increase

Answer 14

Demand for labour decreases

Question 15

Labour sub market

Answer 15

Looking at labour supply or demand is a particular market with particular skills

Question 16

Shifts in demand for labour

Answer 16

how demand changes for factors other than wage rates.

Most general reason is demand for the good or service provided can influence demand for labour.

E,g.
- seasonal changes
- tastes /preferences
- substitute goods demand rise
- political stances
- increased demand for foreign production

Question 17

Outward shifts In demand for labour

Answer 17

Increased consumer demand

Increased labour productivity

Lower capital productivity

Foreign Competition

Government employment subsidies

Question 18

Inward shifts in the demand curve for labour

Answer 18

Less consumer demand

Lower labour productivity

Higher capital productivity

Less foreign competition

Removal of government subsidies

Question 19

Wage elasticity of demand

Answer 19

If inelastic then labour does not respond much to a change in wage rate e.g. coal miners

If elastic then labour does respond a lot to a change in the wage rate e.g. IT Specialist

Question 20

Wage elasticity of demand

Answer 20

Depends upon how much of an impact a change in the wage rate has and how easily the firms can change its staffing levels.

Question 21

Influences to wage elasticity of demand

Answer 21

PED of the finished product

Proportion of costs spent on labour

Ease and cost of Factor substitution

Time frame

Question 22

Labour supply

Answer 22

Amount of labour workers are willing to offer at a given wage rate

Question 23

Basic idea: if wages are higher workers often are willing to

Answer 23

Work More

Question 24

The traditional labour supply curve is

Answer 24

Upward sloping

Question 25

Changes in the wage rate causes ….. in the supply of labour

Answer 25

Movements

Question 26

Why is supply of labour traditionally upward sloping

Answer 26

Workers are willing to trade of more of their leisure time to get a higher return in wage

Unemployed are willing to work

Question 27

Labour supply shifts

Answer 27

Non-monetary factors:

Working conditions
Fringe benefits
Lower wage in substitute jobs
Higher population
Barriers to entry