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Economics > Theme 3.5 > Flashcards

Theme 3.5 Flashcards

(57 cards)

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1
Q

Describe demand for labour

A

The D for labour is a DERIVED DEMAND, it’s not demanded for its own sake, rather the D for L is determined by the D for the OUTPUT that L is employed to produce i.e if the D for houses increases then the D for labourers to build houses will also increase

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2
Q

Define marginal physical product

A

the extra output produced as a result of employing an additional unit of labour

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3
Q

Describe why initially, as the MPP rises, the AC/unit falls

A

As a firm employs more and more units of labour, MPP increases - each ADDITIONAL unit of labour is adding more to output than the previous unit of labour.

Total output is increasing at an INCREASING rate. The firm is experiencing an INCREASING RETURN- as you add more labour, the SCOPE FOR SPECIALISATION increases and the adv of DIVISION OF LABOUR will begin to manifest.

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4
Q

Describe why when the MPP falls, the AC/unit increases

A

As labour continues to added MPP falls, output will increase at a DECREASING rate. The firm is now experiencing DIMINISHING return- eash additional unit of labour is adding LESS to output than the previous worker.

This is because each additional unit of the variable factor has LESS fixed factors to work with.

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5
Q

What happens to AC/unit as MPP increases

A

decreases

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6
Q

What happens to AC/unit as MPP decreases

A

increases

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7
Q

What assumptions are made when considering the demand for labour

A

Demand for labour is derived in the short run

Output is sold in a perfectly competitive goods market -> ensures the price=constant

Perfectly competitive labour market

Profit maximising employer

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8
Q

What are the factors affecting the demand for labour in the short run (shifts)

A

change in labour productivity (MPP)

change in selling price of the output produced

change in demand for the output that labour is employed to produce

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9
Q

what factor affecting the demand for labour causes movement

A

change in real wage

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10
Q

what is the factor affecting labour in the long run and explain why it takes place in the long run

A

change in the relative price of capital

capital can only be increased (or changed) in the long run as it’s a FIXED f.o.p

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11
Q

Explain the following factor influencing the demand for labour (it’s effect to the curve included) : Change in the real wage

A

Movement

Inverse relationship between real wage and Q/L . At high wage rates, to justify firms employing more workers, these workers are required to have a very HIGH MRP and this excludes a lot of workers hence why we see a CONTRACTION in DL (less workers are hired).

Low wage rates: it’s easier to hire workers justifying a low WR, workers w/ LOW MRPs can be employed now = increase in QL as firms are more willing and able to employ workers at a lower wage rate.

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12
Q

Explain the following factor influencing the demand for labour (it’s effect to the curve included) : Change in the relative price for capital

A

Shift

As capital gets cheaper, DL decreases (vice versa)

SR: the law of diminishing returns is manifested causing the downward slope in D

LR: all f.o.p= VARIABLE= firm has to make the decision on whether to hire more labour or employ capital as they are now SUBSTITUTES. At higher wage rates, firms will start to think labour = cost ineffective and therefore employ more capital (if capital if cheaper) = QL will DECREASE at higher WR (opposite for lower wage rates)

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13
Q

Explain the following factor influencing the demand for labour (it’s effect to the curve included) : Change in labour productivity

A

Shift

As productivity increases, workers’ MPP increases, causing MRP to increase = D shifts RIGHT (vice versa) - greater output and more profit for firms will encourage them to employ more workers.

However, this isn’t always the case as greater productivity= greater output causing a LEFT shift (decrease in DL) as firms need FEWER workers to produce the same output

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14
Q

Explain the following factor influencing the demand for labour (it’s effect to the curve included) : Change in selling price of the product produced

A

Shift

Increase (cetrius paribus)= increase MRP of that worker= RIGHT shift in DL (vice versa).

This is affected by the change in the D for the final product that labour is employed to produce –> increase = increase in DL to make it ( labour is a DERIVED DEMAND)

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15
Q

Define marginal revenue product

A

the addition to total revenue as a result of employing an additional unit of labour

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16
Q

Formula for MRP

A

MPP x Selling Price

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17
Q

Another way to describe MPP

A

Labour productivity

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18
Q

What is the MRP of labour equal to on a labour market diagram

A

Demand for labour (DL)

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19
Q

What does the demand curve for labour show us?

A

how many workers will be hired at any given wage rate over a given time period

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20
Q

In a labour market, who demands labour?

A

firms

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21
Q

In a labour market, who supplies labour?

A

workers

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22
Q

Explain the shape of the MRP curve

A

due to the law of diminishing marginal returns.
initially each additional worker was bringing more revenue (they’re more productive) than the previous worker because of specialisation gains and excess land and capital that the workers could use.

However after a certain point, the next workers suffer from lower productivity as there are now constraints of the firm’s FIXED f.o.p and individual productivity decreases.

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23
Q

Describe the relationship between real wage and demand for labour

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A

Inverse

Increase in RW= CONTRACTION in DL

Decrease in RW= EXTENSION in DL

24
Q

Define supply of labour

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A

the number of workers willing to work in a particular job/industry at a given wage rate

25
Explain the following factor influencing the supply for labour (it's effect to the curve included) : change in pecuniary (financial) rewards
movement An INCREASE in RW= INCREASE reward for working in that occupation = EXTENSTION in SL i.e if wr increased it'll incentivise workers to enter the industry from other industries (assuming some degree of occupational mobility). A DECREASE in RW= DECREASE the reward for working in that particular occupation= CONTRACTION in SL. i.e if wr fall then workers may leave this industry and seek better wages in other industries where wages are more generous (assuming some degree of occupational mobility).
26
List the factors causing the supply of labour to shift
Wage on offer in substitute occupations Barriers to entry Non-pecuniary characteristics of the job Improvements in occupational labour morbility Overtime Size of the working population Value of leisure time
27
Explain how the following factor affects the supply of labour : wage on offer in substitute occupations
If the wage on offer in substitute occupations ( industry B)= high, workers from industry A will leave this profession and go work for industry B, where wages are high - shifting SL left. If wages in industry A= high = attracts new workers to industry A increasing SL = right shift
28
Explain how the following factor affects the supply of labour : barriers to entry
Minimum entry requirements such as skills and qualifications -> stricter they become , the higher the bar to entry, the less SL will be in that profession = SL shifts left If those barriers to entry become laxer e.g. skill requirement isn’t as tight as it used to be or qualifications are easier to obtain = SL shift right E.g in the medical industry
29
Explain how the following factor affects the supply of labour : non-pecuniary characteristics of the job
The more benefits there are of non-pecuniary characteristics, the more SL shifts right as this is a big attraction for workers. If the non-pecuniary characteristics are poor e.g. antisocial working hours, bad breaks , poorly treated at work -> SL shifts left as the number of work is willing and able to work in that profession will be lower.
30
Explain how the following factor affects the supply of labour : value of leisure time
If people value leisure time more= SL left shifts e.g. if people would rather spend time with family or enjoying themselves instead of working for a huge number of hours. If people value work more , the value of leisure time decreases = SL right shifts. AO2
31
What are the two labour market failures
geographical immobility occupational immobility
32
Define geographical immobility
unemployed labour in one part of the country will not necessarily want, or be able to move to other areas of the country where vacancies exist. This gives rise to regional unemployment.
33
Which type of unemployment does geographical immobility give rise to?
regional
34
Define occupational immobility
when individuals lack the necessary skills required to transfer to another occupation/industry after demand for their services fall in their original occupation. This gives rise to structural unemployment, which will persist until they retain in a different occupation or until demand for labour recovers in their original occupation
35
Which type of unemployment does occupational immobility give rise to?
structural
36
Give the reasons why geographical immobility is a labour market failure
Poor transport links House Prices Family & social ties House market issues Lack of information
37
Describe the following reason for geographical immobility : poor transport links
e.g AO2 HS2 was a supply side policy, designed to increase geographical mobility between the Midlands and Manchester (north and south), cut journey times, create more space on the rail network and boost jobs outside London, however it was scrapped as the project amounted to £71bn (expensive). EVAL: One opportunity cost of scrapping HS2 is the ability to reallocate funds to areas the UK economy urgently needs, particularly in the context of high public debt. With national debt nearing 100% of GDP, continuing to spend tens of billions on HS2 would mean less fiscal space for more immediate priorities such as healthcare, skills training, or digital infrastructure. By cancelling HS2, the government avoids further debt accumulation and can redirect funds toward projects with higher short-term returns and broader economic impact. Therefore, the opportunity cost of continuing HS2 would have been the potential economic gains lost from not investing in more pressing and productive areas.
38
Describe the following reason for geographical immobility : Family social ties
strong connections to fam and community can make individuals reluctant to relocate, even for better job prospects
39
Describe the following reason for geographical immobility : Housing market issues
homeownership/rental agreements can create barriers, as individuals may find it difficult to sell their homes/ break their leases
40
Describe the following reason for geographical immobility : Lack of information
limited access to info about job opportunities in other regions can prevent individuals from considering relocation
41
AO2- stamp duty
a form of progressive tax due if you buy a property or land over a certain price in England or Northern Ireland. 3% of the application of the house and has raised £15.4bn for gov (2022/23) negative impact: creates excess D for homes w/ limited supply which increases house prices -> challenging for first time buyers (who it was supposed to benefit to enter the market as they faced higher costs with comp
42
Describe the following reason for geographical immobility and how it can be solved : House prices
stamp duty could be reduced or the gov can have more stamp duty holidays however -> fiscal impact : loss of tax rev (£15.4bn in 2022-2023) or relax planning regulations ( making it cheaper and easier for new homes to be built) and can solve housing shortage created by gov supported by D+S w/ supply shifting right diagram & max price
43
AO2- Stamp Duty
3% of the application of the house and has raised
44
Describe the following reason for geographical immobility and how it can be solved : House prices (rent control)
encourages more consumption and equity when it comes to the rented market accommodation (max price diagram)
45
What policies might the UK gov adopt in order to increase the geographical labour mobility and to reduce regional unemployment
Information campaigns (provision of info- gov intervention): launching campaigns to raise awareness about job opportunities in different regions and support available for relocation can help individuals make informed decisions about moving e.g Indeed campaigns Improved transport links - investing in transport infrastructure would make it easier for workers to commute w/o needing to move or can subsidise train companies -> lower c.o.p -> lower prices C (greater CS) and encourages them to commute to work in other areas Enhanced housing support- implementing schemes that provide financial assistance for relocation such as grants for moving costs or housing subsidies, could encourage individuals to move to areas / opportunities Increase Capital mobility/incentives for employers - providing tax incentives/subs to businesses that hire from regions w/ high unemployment can stimulate job creation or helping firms be mobile and set up in several areas e.g BBC moving to Manchester -> employ cheap labour where there's high unemployment in Manchester and save from costs of high wages from employing in London
46
What policies might the UK gov adopt in order to increase the occupational labour mobility and to reduce structural unemployment and its consequences
education and training - interventionist supply side policy - incur massive financial cost in SR and only enjoy benefits in LR - AO2 - Port Talbot. EVAL: spending on education + training for skills may not be the skills required now - the gov should anticipate for the skills that will be required in the future- wrong skills given OC is the next best alternative use of that public money — such as funding the NHS, improving transport infrastructure, or reducing public debt. While retraining helps workers gain new skills and become employable in other sectors, it is expensive and takes time. The government must weigh whether these long-term benefits outweigh the benefits lost from not investing those resources elsewhere.
47
AO2 - Port Talbot
steel work in wales closed down -> structural u (2800) -> now the gov is investing money into educating steel workers so they have the skills to work in another field
48
the supply of labour curve also shows the....
AC of labour
49
the demand for labour curve also shows the....
MRP of labour
50
Factors influencing the PED of labour
SECT Substitutability of capital for labour Elasticity of demand for the product Cost of labour as a % of the total cost Time period
51
Formula for elasticity of demand for labour
% change in QD for labour/ %change in real wage
52
Define elasticity of demand for labour
a numerical measure of the responsiveness of demand for labour following a change in the real wage
53
Define elasticity of supply for labour
a numerical measure of the responsiveness of supply for labour following a change in the real wage
54
Factors influencing the PES of labour
Skills requirement for the job Length of training period Vocation Time
55
Describe the following factor affecting the elasticity of labour demand: substitutability of capital
the more substitutable capital is for labour, the more wage ELASTIC labour demand is going to be
56
In the labour market , excess supply is…
Unemployment
57
When the wage is below the equilibrium wage, what will happen?
The QD of L is higher than the QS if labour- excess demand /shortage

Economics (37 decks)

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