6. The labour market

Question 1

What is derived demand?

Answer 1

Demand for a good or factor of production, wanted not for its own sake, but as a consequence of the demand for something else

Question 2

What is the ‘marginal physical product of labour’?

Answer 2

The addition to a firm’s total output brought about by employing one more worker

Question 3

What is the ‘marginal revenue product of labour’?

Answer 3

The money value of the addition to a firm’s total output brought about by employing one more worker

Question 4

What is elasticity of demand for labour?

Answer 4

Proportionate change in demand for labour following a change in the wage rate.

Question 5

What is a factor market?

Answer 5

A market in which the services of a factor of production are bought and sold

Question 6

What is elasticity of supply of labour?

Answer 6

Proportionate change in the supply of labour following a change in the wage rate.

Question 7

What are some factors that shift the supply curve of labour?

Answer 7

• Change in income
• Change in population
• Change in expectations
• Change in non-monetary rewards

Question 8

What is average cost of labour?

Answer 8

Total wage costs divided by the number of workers employed

Question 9

What is marginal cost of labour?

Answer 9

The addition to a firm’s total cost of production resulting from employing one more worker

Question 10

What is monopsony?

Answer 10

There is only one buyer in a market

Question 11

What is monopsony power?

Answer 11

The market power exercised in a market by the buyer of a good or services of a factor of production such as labour, even though the firm is not a pure monopsonist

Question 12

How would you maximise profit when selling the output produced by labour?

Answer 12

Each firm would have to demand labour up to the point at which the addition to sales revenue resulting from employment of an extra worker equalled the addition to production costs resulting from the employment of an extra worker

Question 13

What is occupational immobility of labour?

Answer 13

When workers are unwilling or unable to move from one type of job to another, e.g. because different skills are needed

Question 14

What is geographical immobility of labour?

Answer 14

When workers are unwilling or unable to move from one area to another in search of work

Question 15

What can wage differences in different labour markets be caused by?

Answer 15

Disequilibrium trading, imperfect market information, the occupational immobility of labour, the geographical immobility of labour, and discrimination in the labour market

Question 16

What is a trade union?

Answer 16

A group of workers who join together to maintain and improve their conditions of employment, including their pay

Question 17

What is collective bargaining?

Answer 17

A process by which wage rates and other conditions of work are negotiated and agreed upon by a union or unions with an employer or employers

Question 18

What is a national minimum wage?

Answer 18

A minimum wage or wage rate that must by law be paid to employees, though in many labour markets the wage rate paid by employers is above the national minimum wage

Question 19

What is wage discrimination?

Answer 19

Paying different workers different wage rates for doing the same job