The demand for labour, marginal productivity theory Flashcards
What is the elasticity of demand for labour definition?
Measures the responsiveness of labour demanded given a change in the wage rate.
What affects elasticity of labour demanded?
SECT
1)Sustainability of capital for labour (the easier it is to substitute labor with machines or technology, the less demand there will be for labor)
2)Elasticity of demand for the product
3)cost of labour as a percentage of total costs
4)Time period
What is meant by the derived demand for labour?
The demand for labour is derived from the demand for the goods and services that labor helps produce. If consumer demand for a product increases, firms will require more labor to produce that product, thereby increasing the demand for labour
How does the labor demand curve illustrate the relationship between wage rates and employment levels?
The labor demand curve typically slopes downward, indicating that as wages decrease, firms are willing to hire more workers, and as wages increase, they hire fewer workers. This inverse relationship reflects the marginal revenue product of labor, which decreases as more labor is employed
What factors can cause the labor demand curve to shift?
1) Changes in product demand: An increase in demand for a product raises the demand for labor to produce it
2) Technological advancements: Innovations can increase labor productivity, altering labor demand
3) Changes in the price of capital: If capital becomes cheaper, firms might substitute labor with capital, reducing labor demand
4) Regulatory changes: New laws or regulations can affect the cost of labor or the need for labor
What is the substitution effect in economics?
The substitution effect occurs when a change in the price of a good makes it more or less expensive relative to other goods, leading consumers to substitute away from more expensive goods in favor of cheaper alternatives
What is the income effect in economics?
The income effect refers to the change in the quantity demanded of a good resulting from a change in the consumer’s real income or purchasing power, due to a price change
