Demand for labour (3.5.1)

Question 1

What is the labour market composed of?

Answer 1

Seller of labour (households) and buyers of labour (firms). Workers supply their labour and firms demand labour

Question 2

What is the demand for labour called?

Answer 2

Derived demand

Question 3

If the demand for goods and service increases what will happen to the demand for labour?

Answer 3

The demand for labour will increase to try and meet the goods and services demand

Question 4

What factors influence the demand for labour?

Answer 4

-The price of the product incentivizes firms to supply more
-Demand for final product, when economy is booming then demand is high and conversely in a recession demand for labour will be lower
-Ability to substitute capital for labour for more cost-effective method. More cost-effective to use machinery so demand for labour will fall
-Productivity of labour increases= lower average costs and firm will likely demand more labour
-Wage rates
-Wages in other countries
-High regulation will discourage firms from hiring as can be costly and time-consuming

Question 5

What is price elasticity of demand for labour?

Answer 5

The responsiveness of the quantity demanded of labour to the wage rate

Question 6

What factors affect PED of labour?

Answer 6

-PED for the product the labour produces. If good is elastic then rise in wages will have a large impact on quantity business sells
-Proportion of wages to TC of production. If wages are a huge proportion of the TC of production then increase in wages will increase costs massively
-Many substitutes such a labour and machinery in other countries will make demand elastic. High skilled jobs are more inelastic