6.1

Created by

alicia jarosz

Cards (28)

What is the labour market also referred as ?
Factor market
factor market definition
a market it which the services of a factor of production are bought or sold
a labour market is an example of a factor market
what is supply of labour determined by?
these who want to be employed (the employees)
what is the demand of labour determined by?
from employers
derived demand definition
demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else
marginal physical product of labour definition
the addition to a firm‘s total output brought about by employing one more worker
demand is related to how productive labour is and how much the product is demanded
what is MPPL also know as?
marginal returns or marginal product of labour
Labour is derived demand - demand for labour comes from what the demand for what it produces
concept of diminishing marginal returns or productivity comes into force when a firm employs more labour when capital (machines ) are fixed
marginal physical product of labour only measures in the short run, assuming capital is fixed
marginal revenue product of labour definition
Money value of the addition to a firm‘s total output brought about by employing one more worker
what is the equation for marginal revenue product of labour?
marginal physical product x marginal revenue (MPPL x MR = MRPL)
the lower the wage rate, the more labour employers, within a labour market will be willing to take on or hire
the demand for labour is affected by?
wage rate - inverse relationship between wage and number of workers hired
demand for products - higher demand for products means higher demand for labour
productivity of labour - more productive workers are higher in demand
substitutes for labour - can be replaced for cheaper capital
how profitable firm is - more profits means they can afford to employ
number of firms in the market - less employers means lower demand
how can productivity of labour be increased?
with education, training and by using technology
according to the marginal productivity theory, what is demand for labour dependent on?
marginal revenue product (MRP)
demand curve shows the MRP
wage rate and level of employment is affected by shifting the demand or supply curve differently, depending on how elastic the other curve is
if labour demand is inelastic, strikes will increase the wages rate but not affect the employment rate significantly
when there is an inelastic demand for labour, a lower supply will lead to a higher increase in the wage rate, that where there is a more elastic demand
What happens to wages when there is inelastic demand for labour and supply falls?
Wages rise significantly because employers still need workers and are willing to pay more. With elastic demand, wage rises are smaller since employers can cut back on hiring
Elasticity of demand for labour definition
Proportional change in demand for labour following a change in the wage rate. The elasticity can be calculated by: percentage change in quantity of labour demanded / percentage change in the wage rate
elasticity of demand for labour is affected by?
how much labour costs as a proportion of total costs - higher costs of labour means more elastic the demand
easier it is to substitute factors, more elastic the demand for labour, firms can easily switch to cheaper forms of production e.g capital
the PED of the product - the more price elastic the product, the more price elastic the demand for labour
what cause a shift in the demand for labour curve ?
Changes in productivity
Demand for goods/services
Price of capital
Change in workers skills or technology
what makes demand for labour more elastic?
when labour is easily replaceable by capital, when wages are a large proportion of total costs, and when there’s time to adjust
Why might a firm’s demand for labour be inelastic?
If workers are highly skilled or essential, and no easy replacements, like machines, exist