Microeconomics 5.1-5.3 Labour Market

Question 1

Labour

Answer 1

A factor of production which uses human capital

Question 2

Derived demand

Answer 2

Where the demand for a factor of production is based upon the demand for a product.

Question 3

Demand for labour

Answer 3

Willingness and ability of a firm to hire labour at differnet wage rates.

Question 4

Wage

Answer 4

The cost of a unit of labour (the marginal cost)

Question 5

Marginal revenue product of labour

Answer 5

the additional revenue received by a firm as it increases output by using an additional unit of labour input

Question 6

MPPxP=

Answer 6

Marginal revenue product of labour (MRPL)

Question 7

MRPL

Answer 7

Marginal revenue product of labour

Question 8

Marginal physical product

Answer 8

Amount of additional output produced if the firm increases its labour input by 1 unit (i.e. adding one more person-hour)

Question 9

How does the firm decide how many workers to employ?

Answer 9

Where MRPL=MC (wage rate).

Question 10

What happens to the demand for labour during a recession?

Answer 10

It falls

Question 11

Wage elasticity of labour demand calculation

Answer 11

%change in quantity demanded for labour/% change in wage

Question 12

What does wage elasticity of demand measure?

Answer 12

Responsiveness of demand for labour by firms when there is a change in the wage rate.

Question 13

What factors affect WEDL?

Answer 13

Proportion of labour costs as % of total costs, ease of factor substitution; PED for final product;time period

Question 14

What can make WEDL more elastic?

Answer 14

Long run; easier to substitute capital to replace labour; high proportion of labour costs; PED greater than 1 (elastic)

Question 15

What will happen to the demand for labour if there is a rise in demand for the good?

Answer 15

Shifts right

Question 16

What will happen to the demand for labour if labour becomes more productive.

Answer 16

Shifts right

Increases MRP so labour becomes more cost efficient compared to capital.

Question 17

What happens to the demand for labour if capital equipment becomes cheaper?

Answer 17

Shifts left.

Question 18

What is the supply of labour?

Answer 18

The number of houses people are willing and able to work at a given wage rate.

Question 19

What is the relationship between labour and supply- positive or negative?

Answer 19

Positive- as wages rise, more people enter the labour market.

Question 20

What influences the supply of labour?

Answer 20

Wage rate, nonpecuniary conditions; amount of training; migration; fliexibility and location; age structure; attitude to work.

Question 21

What are demographics?

Answer 21

Proportion of different age groups in the whole population

Question 22

What does non-pecuniary mean?

Answer 22

not consisting of money

Question 23

What non-pecuniary factors can affect the supply of labour?

Answer 23

Working conditions, amount of leisure time, facilities at work, ability to work flexible hours, career progression opporutnities, extent of autonomy given in the job.

Question 24

Wage elasticity of labour supply

Answer 24

the responsiveness of the quantity of labour supplied to a change in the wage rate.

Question 25

Formula for WESL

Answer 25

%change in the quantity of labour supplied/ the %change in the wage.

Question 26

What factors affect the WESL?

Answer 26

Nature of skills required to work in an industry; length of training; if the work is vocational; time period

Question 27

Why might people be unwilling to move to a new job?

Answer 27

family; financial costs; regional variations in house prices; cost of renting; mirgration controls; cultural and language barriers; transport costs.

Question 28

Why might people be unable to swap into a new industry?

Answer 28

Skill gaps; training gaps; exsperience gaps; confidence and motivational problems; discrimination

Question 29

What is structural unemployment?

Answer 29

Where workers have the skills from obsolete industries and so are unable to work in new and growing industries.

Question 30

What can limit the supply of labour and act as a discincentive to work?

Answer 30

Marginal rate of tax; high benefit payments; poor child care options

Question 31

What are the assumptions of a perfectly competitive labour market?

Answer 31

Many workers and firms, all of whom are homogenous; no worker or firm can influence the wage rate; no barriers to entry; perfect information; firms can employ as much labour as they like at the prevailing wage rate.

Question 32

Monopsony employer

Answer 32

Sole or dominant employer in the labour market

Question 33

Who is more powerful in a monopsony market?

Answer 33

The monopsony employer because they have buying power over the employees.

Question 34

What are the causes of labour market failure?

Answer 34

Monopsony, trade union; discrimination, geographical and occupational inflexibilities

Question 35

What is economic rent?

Answer 35

Any amount above the minimum need to keep a factor of production in its current use.

Question 36

What are transfer earnings?

Answer 36

The minimum amount needed to keep a factor of production in its current use.

Question 37

Wage differentials

Answer 37

Differences in wages between workers with different skills in the same industry or those with comparable skills in different industries.

Question 38

Trade Union

Answer 38

Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions or benefits.

Question 39

Bilateral monopoly

Answer 39

Labour market that includes a trade union and a monopsony

Question 40

Labour market flexibility

Answer 40

The ability of workers to move between occupations and indsutries in order to respond to changes in wages and conditions of work.

Question 41

Mobility of workers

Answer 41

Ability of workers to move geographically or occupationally to respond to change in wages and conditions of work.