4. Labour Markets - Labour Demand Shifts

Question 1

What is mnemonic for remembering the 4 key things that shift the labour demand curve?

Answer 1

P-D-P-C

Question 2

What are the four key things that shift the labour demand curve?

Answer 2

1. Price of the final product2. Demand for the final product3. Productivity of workers4. Cost of capital

Question 3

How does the price of the final product effect the MRP?

Answer 3

If the price of the final product rises MRP (MR (= P) x MP) will also rise - this will lead to workers wage rates rising

Question 4

How does demand for the final product effect the MRP?

Answer 4

Labour is a derived demand so if the demand for the final product rises the demand for labour will also rise

Question 5

How does productivity effect the MRP?

Answer 5

If productivity increases the MP produced by labour will increase so MRP (MP x MR) will also increase

Question 6

How does the cost of capital effect the MRP?

Answer 6

In the long-run all FoP’s are variable - firms have to choose between capital machinery or workers - if capital falls in price compared to workers demand for workers will fall and vice versa