Th3.5: Demand for Labour Flashcards
What does the demand curve for labour show?
the quantity of labour that employers would wish to hire at each possible wage rate
What is the demand for labour determined by?
marginal revenue product (MRP) - the extra revenue generated by an individual worker
The higher the MRP…
the higher the demand for workers
What does the law of diminishing marginal productivity mean?
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
Why is the demand for labour assumed to be downward sloping - long run?
in the long run, all productions vary so high wage rate will encourage businesses to use machinery instead of workers
Why is the demand for labour assumed to be downward sloping - short run run?
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
MRP =
marginal output x price OR the difference in total revenue