Intro to Labour markets

• In labour markets who are the suppliers and demanders?

  suppliers - workers

  demanders - firms
• what is the marginal physical product of labour?

  output produced by each extra worker
• what is the marginal revenue product of labour?

  how much extra revenue one extra worker will make
• How do you calculate the marginal revenue product of labour?

  marginal physical product x marginal revenue
• How will a rational, profit maximising firm demand labour?

  A rational, profit maximising firm will demand labour based on the amount of money it can earn from that labour. This is calculated using the marginal revenue product of labour. If workers get more productive (increased marginal physical product) or the revenue from selling what they produce (marginal revenue) increases, then the MRP will increase. An increase in productivity/revenue (i.e. an increase in MRP) will cause firms to hire more workers (demand more labour).
• What happens as wages increase?

  workers supply more labour and consumers demand less labour
• what is excess supply in the labour market called?

  real wage unemployment
• If you are below the equilibrium wage, what does this cause?

  excess demand as quantity supplied of labour by workers is lower than quantity demanded of labour by firms