The labour market (Micro) Flashcards
The labour market, competitive and monopsony
What kind of demand is labour?
Derived demand
What is the demand for labour known as?
MRP, marginal revenue productivity
Why is labour called the MRP?
because a firms demand for labour depends on the productivity of additional units of labour, known as MPP, multiplied by the price of the product
Equation for MRP?
MPP * AR
What determines the demand for labour?
The wage rate
Demand for good or service
Prices of substitutes (machinery)
Labour productivity
What determines the elasticity of demand for labour?
-Time period (long time = easy to replace)
-Elasticity of good or service
-Ease of substitution
What determines the supply of labour?
Population size, Wage rate, Other benefits (non monetary)
What is different about the wage rate compared to other factors in terms of supply and demand for labour?
Will result in a movement not a shift of each curve
What determines the elasticity of supply of labour?
-Vocation (moral rewards)
-Training periods
-Time
What is a wage differential?
The difference in the wages between two occupations
Why might a wage differential occur?
Different skills required, surgeon vs nurse
What wage must workers and firms accept in a competitive market?
The going wage rate (the wage is inelastic)
What key assumption is made in competitive markets labour labour?
Their MRP is always the same (homogenous labour).
At what point are firms profits maximised?
MC = MRP
What is a monopsony?
A market in which there is a single dominant buyer of labour.
Will wages be greater or less in a monopsony market?
Less because they will only employ up to where MC =MRP
What must a monopsonist do to increase supply?
Raise wages.
What is a trade union?
A group/organisation who try to negotiate Better wages.
What will happen to wages in a competitive market if a trade unions are utilised?
Wages will rise above equilibrium point.
What will happen to employment if a trade union is utilised in a competitive market?
Employment will fall (excess supply) and so it only benefits those already in the market
What will happen to wages if a trade union is utilised in a monopsony?
Wages will rise to nearer the competitive market wages
What will happen to employment in a monopsony market if trade unions are utilised?
Can increase so long as wages aren’t set too high
What is the national minimum wage?
‘Wage floor’ which firms must legally pay labour
What happens to NMW increases?
Wages increase, however employment could fall, this however is unlikely, high MPC = increased AD and greater demand for goods and hence labour.
