8 - LABOUR MARKET

• what are factors of production?

  The inputs used to produce goods and services: labour, land, and capital (equipment and structures used in production)
• what does derived demand mean?

  derived from a firm’s decision to supply a good in another market
• what are two assumptions of markets?

  all markets are competitive, and firms only care about maximising profits
• what is a production function?

  the relationship between the quantity of inputs used to make a good and the quantity of output of that good
• what is marginal product of labour?

  the increase in the amount of output from an additional unit of labour
• how do you calculate marginal product of labour?

  Change in output divided by change in labor input
• what does value of the marginal product mean?

  the marginal product of an input times the price of the output
• how do you calculate the value of the marginal product?

  P x MPL
• list labour demand shifters

  ▪ Changes in the output price, P

  ▪ Technological change (affects MPL)

  ▪ The supply of other factors (affects MPL)
• list labour supply shifters

  ▪ Changes in tastes or attitudes regarding the labor–leisure trade-off

  ▪ Opportunities for workers in other labor markets

  ▪ Immigration
• list factors that affect productivity and wages:

  ▪ Compensating differentials

  ▪ Ability, effort, and chance

  ▪ Human capital

  ▪ Superstars phenomenon
• what are compensating differentials?

  a difference in wages that arises to offset the nonmonetary

  characteristics of different jobs
• what do ability, effort, and chance mean?

  ▪ Wages are also affected by chance. Due to factors that are often difficult to predict (technology, social change) demand for some occupations increases while demand for other

  occupations falls.

  ▪ Greater ability or effort often commands higher pay. These traits increase workers’ marginal products, make them more valuable to the firm.
• what does human capital mean?

  the accumulation of investments in people, such as education and on-the-job training
• what does the superstar phenomenon mean?

  The superstars phenomenon arise in markets that have two characteristics:

  ▪ Every customer in the market prefers the good supplied by the best producer (so goods are not perceived to be identical or perfect substitutes).

  ▪ The good is produced with a technology that allows the best producer to supply a large number of customers (or the whole market) at a low cost.
• how do minimum wage laws cause above-equilibrium wages?

  The minimum wage may exceed the equilibrium wage of the least-skilled and experienced workers
• what is a union?

  a worker association that bargains with employers over wages and working conditions
• how do unions cause above-equilibrium wages?

  Unions use their market power to obtain higher wages; most union workers earn 10–20% more than similar non-union workers.
• what are efficiency wages?

  above-equilibrium wages paid by firms to increase worker productivity
• what does discrimination mean?


  the offering of different opportunities to similar individuals who differ only by race, ethnicity, gender, or other personal

  characteristics