The Labour Market Flashcards
What is the marginal productivity theory of the demand for labour
This theory states that the demand for labour is dependent on the marginal revenue
product (MRP).
MRP is calculated by marginal physical product multiplied by marginal revenue.
What is the marginal physical product of labour?
The amount by which a firm’s total output will rise as a result of employing one more worker
Causes of a shift in the market demand for labour
A change in labour productivity
A change in the demand for the good/service being produced
Substitutes for labour- e.g if labour can be replaced by cheaper capital, then the demand for labour will fall
Number of firms in the market, and how profitable they are
Determinants of the wage elasticity of demand for labour
How much labour costs as a proportion of total costs
Price elasticity of demand for the good/service being produced
How easy it is to substitute other factors of production
Time period
