Labour markets

Question 1

Labour supply

Answer 1

The exchange of time for labour. Opportunity cost of leisure. Income effect and substitution effect takes place like a normal good

Question 2

Income effect of labour for income decreases

Answer 2

Takes place like a normal good but also depends on the indifference curve. Some may work more when income decreases to earn enough money to survive

Question 3

Income effect of labour for high income

Answer 3

With very high income, people are likely to reduce number of hours for a work - life balance. The labour supply graph can bend

Question 4

Marginal value product of labour

Answer 4

money value of additional output a firm gets from hiring one more worker

Question 5

MVPL in monopolies

Answer 5

MPL multiplied by MR. Monopoly has less output and employs fewer workers.

Question 6

Monopsony power

Answer 6

When a firm is the sole employer. E.g. NHS
- MCL will slope upwards
- Profit max when MCL = MRP
- Wage determined by average cost