micro - demand for labour

Question 1

explain the concept of derived demand for labour

Answer 1

the demand for labour derives from the revenue (therefore profit) that can be earned from what the workers produce therefore increase in demand for firm’s output = increased demand for labour

Question 2

explain the differences between nominal and real wages

Answer 2

• nominal = wages not adjusted for the effects of inflation
• real = wages adjusted for the effects of inflation

Question 3

explain the concept of sub-markets with respect to the market for labour in an economy

Answer 3

markets for workers with different skills and abilities markets for different types of labour e.g. doctors, cleaners geographical sub-markets

Question 4

explain the factors affecting the demand for labour in an industry/economy

Answer 4

• demand for products and revenue that can be earned from the output
• productivity of workers (MPP)
• wage rate
• other factors of production
• complementary labour costs

Question 5

what is marginal physical product/marginal product of labour and marginal revenue?

Answer 5

• change in output that results from employing one more unit of labour
• change in revenue that results from producing one more unit of output

Question 6

what is marginal revenue product?

Answer 6

change in firms revenue that results from employing one more unit of labour

MRP = MPP x MR

Question 7

what is the marginal productivity theory?

Answer 7

quantity of labour will be determined at the point where

MRP = MCL

Question 8

explain the factors affecting the elasticity for the demand for labour

Answer 8

• elasticity of demand for firm’s products
• the proportion of total costs made up by labour costs (capital intensive manufacturing activity)
• time period
• ease of substitutability
• elasticity of supply of complementary factors

Question 9

explain what is meant by productivity

Answer 9

the amount produced by a worker over a certain period of time

Question 10

explain what is meant by unit labour costs?

Answer 10

the cost of labour needed to produce one unit of output

Question 11

what is the link between productivity and labour costs?

Answer 11

• if productivity increases at a faster rate than wages paid, unit labour costs are likely to fall.
• This can make firms and countries more competitive.

Question 12

why is higher productivity good?

Answer 12

• Lower unit costs: These cost savings might be passed onto consumers in lower prices, encouraging higher demand, more output and an increase in employment.
• Improved competitiveness and trade performance: Productivity growth and lower unit costs are key determinants of the competitiveness of firms in global markets.
• Higher profits: Efficiency gains are a source of larger profits for companies which might be re-invested to support the long term growth of the firm.
• Higher wages: Businesses can afford higher wages when their workers are more efficient, which leads to a greater standard of living.
• Economic growth: If an economy can raise the rate of growth of productivity then the trend growth of national output can pick up.

Question 13

current data on UK productivity

Question 14

current data on China’s productivity

Answer 14

• FDI effects: High levels of inward FDI have boosted productivity: in 2012, Samsung, the world’s biggest memory chip maker, unveiled plans to invest $7bn to build its first chip factory in China.