Wage Determination

Question 1

How is the real wage rate set?

Answer 1

The supply and demand for labour in an occupational labour market will set the real wage rate.

Question 2

How is the real wage rate changed?

Answer 2

A shift in the supply or demand curve can change the real wage rate, and hence employment of labour also changes.

Question 3

When is elasticity of labour demand high (elastic demand)?

Answer 3

Demand for the good is elastic, capital is easily used to replace labour…

Question 4

When is elasticity of labour supply high (elastic)?

Answer 4

Short training periods, work is relatively unskilled…

Question 5

Give an assumption of perfectly competitive labour markets.

Answer 5

Labour are homogenous (identical labour)

Question 6

Give another assumption of perfectly competitive labour markets.

Answer 6

Perfect mobility (easier to switch between jobs)

Question 7

Give a third assumption of perfectly competitive labour markets.

Answer 7

Workers have perfect knowledge of job opportunities.

Question 8

What is a trade union?

Answer 8

A trade union, monopoly supplier of labour, is an organisation of workers joined together to protect their own interests.

Question 9

Give the three types of imperfect competition labour markets.

Answer 9

Monopsonistic labour markets, trade union and bilateral monopoly.