Microeco 2.4

Question 1

A wage increase is caused by firms demanding ________ labour and this causes workers supplying ________ labour

Answer 1

Firms demand more

Workers supply more

Question 2

Elasticity of labour demand definition

Answer 2

How responsive demand for labour is to a change in wages

Question 3

Elastic labour demand

Answer 3

Firms are very responsive to changes in wage

Question 4

Inelastic labour demand

Answer 4

Firms are unresponsive to changes in wage

Question 5

What is excess labour supply known as

Answer 5

Unemployment

Question 6

Factors that effect elasticity of labour demand

Answer 6

1. Substitutes
2. % of total cost
3. Time

Question 7

If labour is easily substitutable, labour demand will be _______

Answer 7

Elastic

Question 8

If it is a large % of total cost, labour demand will be ________

Answer 8

Elastic

Question 9

In the short run, wages are _________

Answer 9

Inelastic because there’s not enough time to find substitutes

Question 10

Factors that affect elasticity of labour supply

Answer 10

1. Skills and qualifications
2. Unemployment levels
3. Time

Question 11

Few qualifications needed, labour supply is _________

Answer 11

Elastic

Question 12

If unemployment levels are high, labour supply is _________

Answer 12

Elastic

Question 13

In the short run, labour supply is _______

Answer 13

Inelastic - Little time to change jobs

Question 14

Factors that increase labour supply

Answer 14

1. Derived demand
2. Productivity
3. Capital costs
4. Migration
5. Income tax
6. Education and training

Question 15

How does productivity effect Labour demand

Answer 15

V productive = More demand for labour = Increase in labour demand
V productive = Less need for as much labour = Decrease in Labour demand

Question 16

Types of labour immobility

Answer 16

Geographical immobility
Occupational immobility (lack of skills)

Question 17

Benefits of minimum wage

Answer 17

Ensures equity
Improves income inequality
May control deflation

Question 18

Costs of minimum wage

Answer 18

Creates unemployment
May increase inflation due to higher production costs
Firms may relocate to benefit from cheap labour elsewhere

Question 19

Benefits of maximum wage

Answer 19

Ensures equity
Improves income inequality
May control inflation - Lower prices due to lower costs

Question 20

Costs of maximum wage

Answer 20

May lead to emigration of workers due to lower incentives

Lower incentives will adversely affect labour productivity

Question 21

Policies to tackle occupational immobility

Answer 21

Government can provide vocational training
Government can subsidies firms to provide training
Government can fund apprenticeships

Question 22

Policies to tackle geographical immobility

Answer 22

Relocation subsidies

Housing market reform to increase supply of cheap housing

Question 23

If demand for labour is elastic, an increase in the wage rate will __________ the demand for labour by a __________ proportion

Answer 23

Decrease

Greater

Question 24

What does elasticity of labour depend on

Answer 24

% of labour of total costs
Factor substitution (machinery)
Elasticity of demand for the product
Time period