Labour Markets

Question 1

What is demand for labour determined by ?

Answer 1

Productivity of labour (MPP) higher productivity the greater willingness to increase wages

Demand for the good

Wage rate , this is mc of labour

Question 2

What is the demand for labour ?

Answer 2

Derived demand

Question 3

What does PED of labour depend on ?

Answer 3

Availability of substitutes - if capital can be used instead in an industry, then demand is price elastic

And if capital cannot be used then demand for labour is price inelastic

Question 4

If wages temporary rise what will firms do ?

Answer 4

Less likely to invest in machinery than is wages were to persists

Making demand price inelastic for a short term rise

Question 5

If demand for product is price inelastic what will a firm do ?

Answer 5

Increase its revenue by increasing price and be in a better place to pay more wages

Question 6

Evaluating marginal revenue product

Answer 6

Not all goods and services have a market price

More difficult to calculate productivity in some industries e.g education

Some people set own pay

Easy to envisage real world scenario where pay changes without MRP changing e.g rival firm tries to recruit staff so employer increases their pay to retain them

Cost of hiring workers is greater than wages rate

Firms have incentive to pay workers less than MRP- thus changes in wages may not affect employment