Chapter 16 - Demand for labour

• Who employs people in the economy?

  Businesses and the government
• What is the relationship between demand for labour and the market wage rate?

  There is usually an inverse relationship
• Why do firms hire workers?

  To produce goods and services for sale
• What is derived demand for labour?

  Demand derived from goods and services demand
• What happens to workforce if consumer demand decreases?

  Firms may reduce their workforce
• What factors shift labour demand in an industry?

  • Rise/fall in consumer demand
  • Change in product price
  • Increase in labour productivity
  • Employment subsidies
  • Change in cost of capital equipment
• What does MRPL stand for?

  Marginal Revenue Product of Labour
• What does the MRPL curve represent?

  The demand curve for labour
• What is the formula for MRPL?

  MRPL = marginal product of labour x marginal revenue
• What happens to MRPL when diminishing returns set in?

  MRPL falls
• What is the profit-maximizing level of employment?

  Where MRPL equals marginal cost of labour
• What does a profit-maximizing firm assume about markets?

  Assumes competitive labour and product markets
• What is a limitation of the MRPL concept?

  Measuring labour efficiency can be difficult
• What affects wage elasticity of labour demand?

  Labour costs as a % of total costs
• How does ease of factor substitution affect labour demand?

  More elastic when substitution is easy and cheap
• What is the impact of price elasticity of demand on labour demand?

  Determines ability to pass on higher costs
• How does the time period affect labour demand elasticity?

  Long run allows easier switching of inputs
• What are three factors influencing demand for labour in construction?

  1. Price of the good or service
  2. Productivity of labour
  3. Cost and availability of substitutes
• How might robotics impact demand for labour?

  They can replace human workers in tasks
• What are positive effects of AI on labour demand?

  AI creates new jobs and markets
• What does LD1 indicate about labour demand elasticity?

  LD1 is elastic; sensitive to wage changes
• What does LD2 indicate about labour demand elasticity?

  LD2 is inelastic; small fall in employment
• What causes the MRPL curve to shift to the right in shoe manufacturing?

  An increase in market demand for shoes
• When do diminishing marginal returns to labour set in?

  When the firm employs 6 workers
• What is the marginal revenue product of labour?

  Revenue gained by selling extra output
• What makes demand for labour more wage elastic?

  High price elasticity of demand for final product
• From where is a firm's demand curve for labour derived?

  From its marginal revenue product curve