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A Level (A2) AQA Economics > Microeconomics part 4- The Labour Market > Flashcards

Microeconomics part 4- The Labour Market Flashcards

1
Q

What is the demand for labour derived from?

A

The demand for the goods and services that labour produces. Therefore it will only change if AD changes

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2
Q

Theory of marginal productivity of labour:

A

The demand for workers depends on their marginal revenue product

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3
Q

Assumptions of the theory of marginal productivity of labour (for the supply of labour):

A
  • All workers are homogeneous
  • Firms have no buying power (can’t attract workers)
  • Trade unions have no impact
  • The physical productivity of each worker can be accurately measured
  • Industry supply of labour is assumed to b geographically and occupationally mobile and can be hired at a constant wage rate
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4
Q

Why the assumptions about the supply of labour for the theory of marginal productivity of labour are not true:

A
  • Workers are not homogeneous
  • There is some trade union power
  • Workers are not completely mobile
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5
Q

Marginal physical product (MPP) definition:

A

Change in total output arising from hiring one extra worker

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6
Q

Marginal revenue product (MRP) definition:

A

The value of the physical addition to output arising from hiring one extra unit of labour

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7
Q

What is the equation for MRP?

A

Marginal revenue product= marginal physical product x marginal revenue

MRP = MPP x MR

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8
Q

What is the demand for labour equal to ?

A

MRP

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9
Q

What shifts MRP?

A
  • Price
  • Changing demand for the product
  • Changes in productivity (MPP)
  • Change in price of technology/ price of substitute used to make goods
  • Change in cost of national insurance
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10
Q

What does the supply of labour look like and equal in a perfectly competitive labour market?

A

Sl=MCl=ACl=W

Horizontal line

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11
Q

What does the demand curve for labour look like and equal?

A 
Dl=MRP
Downwards sloping (providing list of assumptions regarding the theory of marginal productivity of labour are true)
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12
Q

Elasticity of demand for labour definition:

A

The responsiveness of quantity of labour demanded to a change in the wage rate

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13
Q

Formula for elasticity of demand for labour:

A

%change Ql / % changeW

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14
Q

Determinants of the elasticity of demand for labour:

A
  • Time
  • Substitutes
  • Elasticity of demand for the product
  • Proportion of labour costs to total costs
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15
Q

Assumptions of demand for labour in a perfectly competitive labour market:

A
  • Perfect knowledge
  • All workers and employers are wage takers
  • No barriers which prevent wages rising and falling with change in supply and demand
  • Firms aim to maximise profit and workers aim to maximise wages
  • Large number of small firms hiring large number of workers
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16
Q

What would all workers be paid in a perfectly competitive labour marker?

A

The same rate

17
Q

Where does a firm employ, assuming it is a short run profit maximiser?

A

At Q where MCl = MRP

18
Q

Why do wage rates differ?

A
  • Age, gender, ethnic background, discrimination
  • Education, training, experience, ability to perform tasks
  • Region
  • Workers don’t necessarily seek to maximise wages, relative bargaining strength
  • Labour is not perfectly mobile
  • Trade unions, monopsonists, government policy
  • Full/part time workers
  • Basic supply and demand
  • Imperfect information
19
Q

Imperfectly competitive labour market definition:

A

Either the firm in a dominant or monopoly buyer of labour, or, the firms is faced by a monopoly supplier of labour, usually a trade union

20
Q

Monopsony diagram:

A
  • Downward sloping demand curve. Dl = MRP
  • Upward sloping supply curve. S l= ACl = W
  • Upward sloping MC curve above supply
  • Firm employs at Q where MCl = MRP. Wage is read off supply curve
  • In a more competitive labour market, employment would be where supply and demand meet at a higher wage rate and number of workers
21
Q

Why does the MCl curve go up?

A
  • To attract more workers the wage rate must increase
  • If a new worker is paid more, all workers must be paid the new wage rate
  • This causes the MCl curve to go up more steeply that the supply curve
22
Q

Why are monopsonists a market failure?

A

They restrict employment and wages

23
Q

Why are monopsonists able to restrict employment?

A

They are the sole employer. If there was competition, employment and wages would be higher

24
Q

Determinants of PeD for labour:

A
  • Time (Short run- long run): Steep then flattens. Training, technology
  • Substitutes: Machines. CEOs are harder to substitute. More substitutes for labour mean the PeD for labour is more elastic
  • PeD for product
  • Proportion of labour costs to total costs
25
Q

Non-monetary factors affecting whether someone works in a particular industry:

A
  • Flexibility
  • Status
  • Promotion possibility
  • Working conditions
  • Job satisfaction
  • Holidays/ leisure time
  • Location
26
Q

Labour force definition:

A

Those willing and able to work

27
Q

Trade unions definition:

A

An organisation of workers who join together to further the interests of their workers

28
Q

Collective bargaining definition:

A

Process of negotiating on wages, pensions and working conditions

29
Q

What trade unions do:

A
  • Improve working conditions
  • Protect against unfair dismissal
  • Improve workplace training and education
  • Protect pensions
  • Counters monopoly pay
  • Improves the real pay of its members
30
Q

Factors affecting the success of trade unions:

A

-Economic climate
-Public support
-Union density
-Legislation
These factors determine how high the wage can be

31
Q

Problems with trade unions:

A
  • Distort labour market
  • Drive wages and unemployment higher
  • Prevent the introduction of new, flexible work practices
  • Higher wages can lead to cost push inflation
32
Q

The power of trade unions has…

A

decreased in recent years

33
Q

What can trade unions counteract?

A

Some of the labour market failure arising from monopsonists

34
Q

Benefits of minimum wage:

A
  • Increase standards of living
  • Incentivises people to work
  • Prevents exploitation of workers
  • Reduces poverty
  • Reduces inequality
  • Reduces the need for lower paid workers to claim benefits. The firm is helping to reduce poverty
35
Q

Problems with the minimum wage:

A
  • Disequilibrium leading to unemployment
  • Cost push inflation
  • Reduces our comparative advantage
  • Less than the living wage
  • Doesn’t necessarily reduce relative poverty- pay leap-frogging
36
Q

Evaluation of minimum wage:

A
  • Increase in NMW increases AD
  • Labour is derived demand so demand for labour increases
  • The extent to which there is excess supply of labour depends on how much demand for labour increases as a result of the increase in AD (labour intensive)
  • Minimum wage leads to greater unemployment in industries where labour can be easily replaced with machines e.g. self check out
37
Q

Main beneficiaries of the minimum wage:

A
  • Young people
  • Women
  • Part-timers
  • Has helped to slightly narrow the gender pay gap at the bottom of earnings
38
Q

Alternatives to minimum wage:

A
  • Welfare benefits
  • Free school and NHS
  • Progressive income tax system
  • Tax allowance
  • Pay caps

A Level (A2) AQA Economics (10 decks)

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