labour markets Flashcards
marginal revenue production theory
marginal physical product of labour (MPP) is the amount of output produced by each worker
additionally the amount at which each product can be sold at is the marginal revenue
with these two factors we can get the marginal revenue product of labour which tells us how much extra revenue one extra worker will make by multiplying mpp x mr = mrpl
mrp and demand for labour curve
A rational, profit maximising firm will demand labour based on the amount of money it can earn from that labour.
if workers get more productive (increased mpp) or the revenue from selling what they produce (marginal revenue) increases then the MRP will increase.
An increase in productivity/revenue (ie an increase in MRP) will cause firms to hire more workers (demand more labour)
labour supply and demand - how do we label our axis
the vertical axis needs to be labelled with wage
and the horizontal axis needs to be labelled with quantity of labour
what do we label the demand curve and explain
the downward sloping demand curve is labelled mrp
as wages increase, hiring workers become more expensive and so firms demand fewer workers. This leads to a downward sloping labour demand curve
explain the upward sloping supply curve
when wages go up people realise they can make more money therefore quantity supplied of labour increases
whereas when wages go down fewer people will be willing to work and supply of labour
what do firms and workers do in terms of demand and supply
firms - demand - produce goods
workers - supply - earn wages
what is excess supply in the labour market
unemployment
as when we drag on to the demand curve that is the amount of people willing and able to work however we are taken back to the supply curve with the workers that are actually being surplus/ excess supply
what is elasticity of demand for labour
how responsive demand for labour is to changes in wage
small percentage increase in wage will lead to a bigger percentage change in quantity demanded
firms are very responsive to changes in wage
eg if macdonals workers wanted slightly higher wages macdonalds would be very responsive and replace them with machines and fire workers
what is inelastic demand for labour
labour demand curve is steep
so a big percentage increase in wage will lead to a smaller percentage change in demand firms are unresponsive firms will only cut there workers a little bit
