Th3.5: Demand for Labour Flashcards

1
Q

What does the demand curve for labour show?

A

the quantity of labour that employers would wish to hire at each possible wage rate

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2
Q

What is the demand for labour determined by?

A

marginal revenue product (MRP) - the extra revenue generated by an individual worker

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3
Q

The higher the MRP…

A

the higher the demand for workers

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4
Q

What does the law of diminishing marginal productivity mean?

A

that increasing the number of workers, whilst all other factors are fixed, is likely to increase MRP at first but then cause it to decline

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5
Q

Why is the demand for labour assumed to be downward sloping - long run?

A

in the long run, all productions vary so high wage rate will encourage businesses to use machinery instead of workers

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6
Q

Why is the demand for labour assumed to be downward sloping - short run run?

A

in the short run, firms have fixed levels of capital and so diminishing marginal productivity means that adding extra workers give a lower return so to employ these workers, the wage rate has to fall

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7
Q

MRP =

A

marginal output x price OR the difference in total revenue

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