3.5.1-2 Demand and Supply of labour

Question 1

Define derived demand

Answer 1

Derived Demand is when the demand for a commodity/ service is due to the demand for a good.

Question 2

Define MPP (Marginal Physical Product of labour)

Answer 2

This is each additional good produced for each additional unit of labour.

Question 3

What is the law of diminishing returns?

Answer 3

Where each good consumed produces the same amount of satisfaction up to a point where the level of satisfaction decreases for each additional good consumed.

Question 4

Define MRP (Marginal Revenue Product of labour)

Answer 4

The extra revenue produced per each additional unit of labour. MRP = MPP x MR

Question 5

What is Marginal Productivity theory?

Answer 5

The theory that a firm will employ labour up until the point where MR = MC of the extra worker. This means that the firm are profit maximising.

Question 6

Identify 4 factors that would shift the demand curve for labour

Answer 6

• If the price of the end product increases
• If there is a fall in the non-wage costs of production
• A decrease in the price of capital that replaces labour
• An improvement in labour productivity

Question 7

What is the formula for calculating MP if you are given a table?

Answer 7

Change in total product / change in labour

Question 8

Identify 4 factors that would affect elasticity of demand for labour.

Answer 8

• Availability of capital that could replace labour
• Price elasticity of the end good
• Labour cost as a % of total costs
• Time

Question 9

Using the MRP theory explain why a footballer gets paid more than a plumber

Answer 9

A footballer has a higher more rare skillset in a very competitive market compared to a plumber. A plumber could also be easily replaced in comparison to a footballer. The footballer will sell shirts and tickets so the extra revenue gained is higher than the plumber.

Question 10

What is the relationship between leisure time and work?

Answer 10

They are substitutes.

Question 11

What is the opportunity cost of 1 hour of work?

Answer 11

1 hour of leisure

Question 12

What is meant by the substitution effect of a wage increase?

Answer 12

For people with a lower wage, the increase in wage rate will motivate them to work for longer/

Question 13

What is meant by the income effect of a wage increase?

Answer 13

For people with a higher wage, the increase in wage will demotivate them to work as they are earning more money for less time worked.

Question 14

Why might an individuals supply of labour be backward bending?

Answer 14

This is where the income effect outweighs the substitution effect. The more the wage rises, the less labour the individual supplies.

Question 15

What is the supply curve of labour also known as?

Answer 15

The Average Cost curve of labour - this shows us how many workers will be prepared to supply labour at each wage rate and therefore. The average wage rate is = to the average cost of the firm.

Question 16

Identify 3 non-monetary factors that would affect an individuals supply of labour.

Answer 16

• Potential of Promotion
• Job satisfaction
• Gym subscription

Question 17

What is meant by non-monetary benefits ?

Answer 17

Rewards that are not cash, such as access to facilities, health insurance, holiday entitlement.

Question 18

Identify 5 factors that would affect the supply of labour

Answer 18

• Immigration
• Improvements in infrastructure (Geographical mobility)
• Improvements in training opportunities (Occupational mobility)
• Welfare / unemployment benefits
• Wages and working conditions

Question 19

Define geographical mobility of labour

Answer 19

When workers cannot or will not move from areas of high unemployment to areas where there are jobs

Question 20

List 4 causes of geographical mobility of labour

Answer 20

• Family ties and children’s eduction
• Cost of moving
• Housing issues i.e. price differentials
• Lack of information about a job market

Question 21

Define occupational mobility of labour

Answer 21

When a worker in one industry which is suffering from structural unemployment and cannot move to another industry easily

Question 22

List 4 causes of occupational mobility of labour

Answer 22

• Retraining required
• Lack of information on skills required for available jobs
• Inherent abilities of of the structurally unemployed resources may not match the jobs available
• Lack of desire to retain / fear of change

Question 23

Explain 2 strategies to improve occupational mobility

Answer 23

Retraining schemes - the government can invest in schemes for people who are suffering structural unemployment to gain skills for the current job vacancies

Adult apprenticeships - business’ can take workers at a reduced rate and train them to work for the business in the future

Question 24

Explain 2 strategies to improve geographical mobility

Answer 24

Housing market schemes - initiative to build houses that are affordable and make it easier to relocate

Improvements in transport infrastructure