Demand for labour

Question 1

labour

Answer 1

a factor of production comprising the effort of workers to create goods and services

Question 2

sub-market

Answer 2

part of the market with unique characteristics

Question 3

derived demand

Answer 3

where the demand for a factor of production or good derives from the goods or services that it provides

Question 4

marginal physical product of labour (MPPL)

Answer 4

the additional quantity of output produced by an additional unit of labour input

Question 5

marginal revenue product of labour (MRPL)

Answer 5

the additional revenue received by a firm as it increases output by using an additional unit of labour input,

i.e. the marginal physical product of labour multiplied by the marginal revenue received by the firm

MRP𝐿=MPP𝐿×MR

Question 6

marginal revenue product theory

Answer 6

a theory which argues that the demand for labour depends upon balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit of labour

Question 7

wage elasticity of demand for labour

Answer 7

a measure of the sensitivity of quantity of labour demanded to a change in the price of wages. It is measured as:

𝑊𝐸𝐷= (% change in quantity of labour demanded)/(% change in wages)

Question 8

labour productivity

Answer 8

a measure of output per hour worked

Question 9

unit labour cost

Answer 9

the average cost of labour per unit of output

Question 10

Examples of labour market for teachers

Answer 10

Sub market for economics teachers
Sub market for business teachers
Sub market for maths teachers
Sub market for English teachers
Sub market for physics teacher

Question 11

Examples of labour markets for doctors

Answer 11

Sub market for GPs
Sub market for psychiatrists
Sub market for surgeons
Sub market for anaesthetists

Question 12

Who is labour demanded by

Answer 12

by government and firms for what labour produces, not for the labour itself; all demand for labour is derived demand

Question 13

Factors affecting demand for labour (movement/ shifts)

Answer 13

Movements

Price of labour (wage rate)

Shifts

Change in demand for the products workers produce
Change in productivity of workers, changing their desirability as a substitute for capital
Change in the price of the good workers produce
Change in the cost of capital
Change in an employment subsidy

Question 14

Factors affecting wage elasticity of demand for labour

Answer 14

Time – demand for labour is more elastic in the long run as new workers can be trained, but in the short run demand for labour is more inelastic

Substitutability – the extent to which labour can be substituted by capital (machines)

Proportion of total costs – if wages area small proportion of a firm’s total cots then demand for labour is more inelastic

PED of product – the more price elastic demand for the product, the more elastic the demand for labour because wage costs are passed on to the consumer by increased prices

Question 15

What does a profit maximising firm chooses labour input such that

Answer 15

the marginal cost of labour is equal to the marginal revenue product of labour (MC𝐿=MRP𝐿)

Question 16

Why is the MRPL curve downward sloping

Answer 16

Due to diminishing marginal returns from each extra unit of labour (worker) employed

Question 17

What does the position of the firms labour demand curve depend on

Answer 17

factors that affect the price of the firm’s product and influence the marginal physical product such as:
Technology
Efficiency

Question 18

Why is MCL horizontal in a perfectly competitive market

Answer 18

a firm cannot influence the market wage, and can get as much labour as required at the market rate, so MC𝐿 is horizontal.

Question 19

What are the main influences on labour productivity

Answer 19

Skills and training of workforce

Availability of complementary factor inputs (capital and technology)

Organisation of production process (e.g. division of labour)

Question 20

What does productivity affect in a firm

Answer 20

the firms ability to compete domestically and internationally