Unit 2: Labour Economics

Question 1

Labour is

Answer 1

one of the basic factors of production

Question 1

Labour works like

Answer 1

other goods and services in that there is a market for it

Question 2

Just like other goods and services, the labour market is a

Answer 2

complex system of interrelated factors based on supply and demand

Question 3

Demand for labour is similar to demand for goods and services

Answer 3

Both relate to a quantity that is demanded at a given price
This ia a wage rate for labour

Question 4

Significant difference in how each is demanded

Answer 4

Demand for goods and service is a DIRECT demand
- Consumers use their money to indicate the value of utility that they receive from a good at different price levels

Question 5

Demand for labour, like other resources, is a DERIVED demand

Answer 5

It is dependent on the consumer demand for the good or service being produced by the labour
Greater the quantity demanded of a particular good or service, the greater the quantity of labour demanded to produce it

Question 6

Demand for Labour

Answer 6

Demand for labour affected by more than just the demand for the product
It is also affected by worker productivity

Question 6

Productivity:

Answer 6

How much each worker can produce in a specified period of time

Question 6

Demand for labour is determined by productivity, tied to both

Answer 6

the price of the good or service and the wage rate

Question 7

Households = ___ (supply of labour)
Business firms = ___ (demand for labour)
Price = ___ (E.B $ as previously)

Answer 7

Suppliers, consumers, wage rate

Question 8

(MRPL)

Answer 8

Marginal Revenue Product of Labour. MRPL is directly related to marginal product

Question 9

Marginal product:

Answer 9

the additional output that is created by an additional unit of labour

Question 10

Firms will always hire workers as long as the MRPL is at a slight profit over the ___ ____ ___

Answer 10

worker wage rate

Question 10

Market labour demand curve:

Answer 10

the quantity of labour demanded by all firms for a particular type of labour at each of the possible wage rates

Question 11

Marginal revenue product of labour:

Answer 11

the amount of additional revenue that is generated from marginal product

Question 12

For a firm operating in perfect competition:

Answer 12

MRPL = price of the good x the marginal product

Question 13

There are three primary factors that can shift labour demand curves:

Answer 13

1) A change in the demand for the product of labour
2) A change in the price of other productive resources
3) A change in worker productivity

Question 14

DEMAND CURVE SHIFTS 1) Change in demand for the product of labour

Answer 14

• Increase in product demand= increase in demand for labour (from firms) – decrease, vice versa

Demand for labour is derived from demand for the product of labour. Increase in demand for a product, there’s a corresponding increase in automobile workers. Increase in demand leads to a higher price for the product. Higher product price means that the same output now has a higher marginal revenue product of labour. Upward shift of demand curve. Conversely, decrease in demand for automobiles will decrease the demand for automobile workers.

Question 15

DEMAND CURVE SHIFTS 2) Change in Price for other Productive Resources

Answer 15

• EX. If price of using robotic equipment increases to relative price of labour, labour demand will increase; because it’s cheaper than robotic labour. As demand for capital goods decreases, demand for labour will decrease.

Most products require inputs from land, labour, capital. Capital is usually a labour substitute. Automobile manufacturer may choose to produce automobiles using capital goods (robotic equipment) or using manual labour. If price of using robotic equipment increases to relative price of labour, labour demand will increase; because it’s cheaper than robotic labour. As demand for capital goods decreases, demand for labour will decrease.

Question 16

DEMAND CURVE SHIFTS 3) Change in worker productivity

Answer 16

• (If workers become more productive: demand for workers will increase). As workers become more productive, the MRPL is higher. Productivity increase can come from numerous sources. Capital equipment, better training, improved worker management– all have potential to increase worker productivity; therefore demand for labour. Opposite effect is also possible– decrease in worker productivity leads to a decrease in demand for labour.

As workers become more productive— they increase their marginal product of labour, demand for labour will increase. (If workers become more productive: demand for workers will increase). As workers become more productive, the MRPL is higher. Productivity increase can come from numerous sources. Capital equipment, better training, improved worker management– all have potential to increase worker productivity; therefore demand for labour. Opposite effect is also possible– decrease in worker productivity leads to a decrease in demand for labour.

Question 17

As the wage rate increases, more individuals are willing to offer their services in the labour market

Answer 17

It becomes greater than the opportunity cost for more individuals
Therefore, at higher wage rates, the quantity of labour supplied is greater
The labour supply curve slopes upward

Question 18

There are other factors that influence the labour supply curve:

Answer 18

1) Skills Required for a Job
2) The Geographic Location of a Market
3) Dangerous or Unpleasant Work

Question 19

1) Skills required for a job

Answer 19

Specific skills required for some jobs restricts some people from offering their services in some labour markets
Offering services as a medical doctor requires a medical degree
Conversely, there are few special skills required to deliver news papers
As a result, more individuals can offer their services at any given wage rate

Question 20

2) Geographic Location of a Market

Answer 20

Labour markets that are in large population centres tend to have a greater quantity of labour supplied at each wage rate than those in more isolated areas

Question 21

3) Dangerous or unpleasant work

Answer 21

Labour markets that are in large population centres tend to have a greater quantity of labour supplied at each wage rate than those in more isolated areas

Question 22

Requiring a special skill-set, work being in a remote location, and/or being an unpleasant, distasteful, and/or dangerous job will;

Answer 22

draw fewer people, and often pay more money
Labour supply curve is farther to the left

Question 23

There are also variable factors that shift labour supply curves:

Answer 23

1) Changes in income tax rates
2) Changes in the size and composition of the population
3) Changes in household technology
4) Changes in attitude about work

Question 24

LABOUR CURVE SHIFTS 1) Changes in income tax rates

Answer 24

Income tax increase means gov. Takes larger portion of wages earned. Effect becomes the same if the employer paid lower wages. This reduces labour supply, shifting the curve to the left. A decrease in income taxes has the effect of increasing the supply of labour, shifting the curve to the right.

Question 25

LABOUR CURVE SHIFTS 2) Changes in size/composition of population

Answer 25

As pop. increases or decreases, people available to offer services at given wage rate also increases or decreases. Can also be influenced by age distribution of population. Aging workforce won’t have enough skilled workers to replace them after retirement. Increase in workforce pop shifts labour supply curve to right, decrease shifts the curve to the left.

Question 25

LABOUR CURVE SHIFTS 3) Changes in household tech

Answer 25

Choice to work depends on opportunity costs involved in productive work that could’ve been done in same time period. Overtime, tech use in homes has increased, household chores can be done quickly now. Microwave ovens means quicker dinners and, dishwashers result in a quicker clean-up. More time for individuals to offer services to labour market, because opportunity cost is lower. Labour supply curve shifts to right, increases, as more household tech is introduced.

Question 26

LABOUR CURVE SHIFTS 4) Changes in attitude about work

Answer 26

Labour overtime is changing attitudes about roles in society. For a long time the role of women was seen to be in the household and not in the labour force. 1901 to 1999, women in the workforce went from 15% to 46%. Labour supply curve shifts to the right. Child labour laws were applied and age restrictions were used in the use of labour. Labour supply shifted to the left because of this.

Question 27

Gross Domestic Product (GDP)

Answer 27

Total valye of all final goods/services produced by an economy in a given year

Question 28

Rand Formula

Answer 28

A 1945 ruling stating that all workers in a workplace in which a union exists and bargains for all workers must pay union dues, even if they’re not union members