The Labour Market

• The demand for labour decreases if the price of substitute resources like capital becomes cheaper
• What happens to the demand for labour if the demand for the firm's output increases?

  It increases
• If workers become more productive, the demand for labour increases because it becomes more cost-efficient.

  True
• What does wage elasticity of demand measure?

  Responsiveness to wage changes
• Match the factors affecting wage elasticity of demand with their descriptions:

  Labour costs as a percentage of total costs ↔️ Higher percentage implies greater elasticity

  Ease and cost of factor substitution ↔️ Easy substitution increases elasticity

  Price elasticity of demand for final product ↔️ Inelastic demand reduces elasticity

  Time period ↔️ Longer time allows greater elasticity
• The labour demand curve slopes downwards to the right because firms demand more labour at lower wages.

  True
• Marginal revenue product of labour (MRPL) is calculated as marginal product of labour multiplied by marginal revenue
• Why is the demand for labour called derived demand?

  Linked to product demand
• The MRPL curve falls due to diminishing returns.

  True
• Wage elasticity of supply measures the responsiveness of the quantity of labour supplied to a change in the wage
• Up to what point does a profit-maximizing firm employ workers?

  MRPL equals wage
• Match the factors affecting wage elasticity of supply with their descriptions:

  Nature of skills and qualifications ↔️ Specific skills reduce elasticity

  Vocational nature of work ↔️ High vocational demand increases elasticity

  Time period ↔️ Longer time allows greater elasticity

  Occupational and geographical mobility ↔️ High mobility increases elasticity
• The wage in a competitive labour market is determined by the interaction of labour demand and labour supply.

  True
• Geographical immobility refers to barriers preventing workers from moving to a new location
• What are some examples of non-monetary rewards that influence labour supply?

  Job satisfaction, working conditions
• In a perfectly competitive labour market, the equilibrium wage and employment level occur where labour demand equals labour supply.

  True
• What is a monopsony in a labour market?

  One major employer
• For a monopsonist, the marginal cost of labour exceeds the average cost of labour
• Monopsony power can lead to reduced wages and lower employment levels.

  True
• What is the profit-maximizing employment level for a monopsonist?

  MCL equals MRPL
• The NMW acts as a legally imposed price floor
• Match the types of wage differentials with their descriptions:

  Compensating wage differentials ↔️ Reward for risk or poor conditions

  Reward for human capital ↔️ Compensation for education costs

  Differences in productivity ↔️ Higher efficiency leads to higher pay

  Artificial barriers to labour supply ↔️ Professional exams restrict supply
• What is the purpose of the national minimum wage (NMW)?

  Fairer pay, less discrimination
• What does the gender pay gap measure?

  Earnings difference between men and women
• A monopsonist, like a monopolist, can increase profits by reducing output and raising prices.

  True
• Trade unions use collective bargaining to represent and protect the rights of workers
• If the demand for the final product is inelastic, the firm can pass on costs
• Trade unions control the supply of labor through closed shops.

  True
• A firm can afford a pay rise if it is already making substantial profits
• Trade unions aim to improve only monetary aspects of jobs.

  False
• What is the primary purpose of a trade union?

  Protect workers' rights
• The macroeconomic climate influences trade union power
• A trade union can push wages and employment up in a monopsony labor market.

  True
• How does globalization affect trade union power?

  Reduces it
• If a trade union gains a wage above the market equilibrium, it may cause real wage unemployment
• What is the term for the wage difference between union and non-union members?

  Trade union wage premium
• Trade unions can reduce employment flexibility
• Trade unions can counterbalance the monopsony power of employers.

  True
• What are the conditions for a competitive labor market?

  Many buyers and sellers
• Geographical mobility refers to the ability of labor to move around for work