Chapter 6 Flashcards
(18 cards)
Derived demand
Demand for factors of productions is comes from the demand for another product
Marginal revenue productivity (MRP)
The addition to a firm’s revenue from employing an additional unit of factor of productions (usually labour)
Marginal physical product (MPP)
The addition to output from employing an additional unit of a factor of production (usually labour)
Determinants of labour demand
Wage rates (higher wages, low demand)
Labour productivity (productivity increase, increase demand)
The price of substitute factor (increase capital equipment, increase demand for labour)
Other labour costs (increase in employers national insurance and pension contributions, demand for labour fall)
elasticity of demand for labour
Measure of the responsiveness of the quantity of labour demanded following a change in the wage rate
Determinants of elasticity of demand for labour
Ease of substitution (easier to replace, elastic)
Time (long term the more elastic)
Elasticity of demand for the good or service
Proportion of labour cost to total cost of production
Determinants of supply of labour
Wage rates
Size of working population
Non monetary factors (working conditions and holiday allowance)
Elasticity of supply of labour
A measure of the responsiveness of the quantity of labour supplied following a change in wage rate
Determinants of elasticity of supply of labour
Time (longer more elastic)
The length of training period (longer more inelastic)
Vocation (opportunity to make a difference to people’s lives, inelastic)
Wage differentials
Differences in wages arising between individuals, occupations, industries and regions
Perfectly competitive labour market characteristics
Each unit of labour is homogenous and unable to influence the wage rate
Workers must therefore accept the going wage rate ( S= D) and employers must pay at the wage rate or above
Perfect information
Maximise profit at MRP = MC
freedom of entry and exit the market
Monopsony
Single dominant buyer (state NHS)
Trade union
A group of workers that bargains collectively with employers to increase its members wages
National minimum wage
A statutory minimum wage used to increase the earnings of the low paid
Negative discrimination
Where employers treat a specific group of workers less favourably than others in terms of pay and employment levels
Positive discrimination
Where employers treat a specific group of workers more favourably than others in terms of pay and employment levels
Contains necessary for wage discrimination
Firms must have wage setting ability (must be imperfect)
Distinct/seperate labour markets (workers unable to successfully offer their labour in a different market for higher wage)
Lack of legal protection or imperfect information
Disadvantages of wage discrimination
May lead to some groups being underpaid and underemployment, worsening relative poverty
Increased government spending on welfare benefits
Waste of scarce, valuable resources
May lead to litigation, as workers attempt to take legal action against employers
Lack of cultural diversity in the workplace
May create social tensions
