The labour market

Question 1

Define demand for labour

Answer 1

How many workers a business will employ at a given wage rate in each time

Question 2

What is marginal revenue product of labour? (MRPL)

Answer 2

MRPL = extra revenue generated when an additional worker is employed
marginal product of labour x MR

Question 3

What is derived demand for labour?

Answer 3

the demand for labour that depends on the demand for the product that labour makes
Businesses demand labour because they believe they can make a profit by selling the output that the labour produces.

Question 4

Define wage elasticity of labour demand

Answer 4

measures the responsiveness of demand for workers when there’s a change in wage rate.

Question 5

What 4 factors does wage elasticity depend on?

Answer 5

1. labour costs as a % of total costs (when labour expenses are a high % of total costs, then labour demand is more wage elastic)
2. Ease and cost of factor substitution (labour demand is more elastic when a firm can easily and cheaply substitute labour and capital.
3. PED for final product (determines whether a firm can pass on higher labour costs to consumers if PED is inelastic)
4. time period (in LR, it’s easier for firms to switch factor inputs e.g. bring more capital in replacing labour)

Question 6

What causes a shift in the demand curve for labour?

Answer 6

• changes in productivity of labour
• changes in skill level of labour
• changes in price of goods/services produced
• change in demand for the good/service
• technology

Question 7

Non-wage factors affecting labour supply

Answer 7

• job risk and security
• anti-social working hours
• working conditions
• quality of training/professional development
• flexibility (starting hours, days off, location, pregnant women)
• childcare prices (inaccessible, women have to leave work)