Labour Markets Flashcards
What does labour is a derived demand mean
That it depends on the demand for goods and services
Marginal physical product of labour (MPP)
The amount of output produced by each extra worker
Marginal revenue (MR)
the additional revenue from selling one extra unit
Formula for MRP of labour
MPP x MR
Marginal Revenue product
The extra revenue that an additional worker will bring in
Marginal productivity theory of demand for labour
What do economists believe at rational, profit maximising firms
That a rational profit maximising firm will demand labour based on their MRP as D=MRP
How do wages affect supply of labour
- when wages go up, people realise they can make more money so more ppl are willing to work, so supplyof labour increases
- if wages go down, ppl can’t make as much money working so fewer ppl are willing to work and the supply of labour decreases
What happens when wages increase
Hiring workers become more expensive so firms demand fewer workers
But workers are more willing to work because thy can make more money so they’ll supply more labour
What happens when wages decrease
Hiring workers becomes cheaper so firms demand more labour
But workers are less willing to work because they can’t make enough money so supply less labour
Elasticity of demand for labour
How responsive demand for labour is to changes in wage
Elastic labour demand
flatter demand curve
- A small change in wages will lead to a bigger proportionate change in labour demand
- very responsive to changes in wages
Inelastic labour demand
steeper demand curve
- A big change in wages leads to a smaller proportionate change in labour demand
- unresponsive to changes in wages
Factors that determine the PED of labour
- Substitute
- ## Time
The supply of labour
The willingness and ability of a worker to supply their labour at a given rate
What is supply of labour influenced by
- Monetary and Non monetary factors
Monetary factors
financial payments for the labour
- Wages
- Bonus
- Commission
- Fringe Benefits
Non monetary benefits
- Job satisfaction
- Job security
- Working conditions
- Work/life balance
