Unit 4

Question 1

Marginal physical product of labour

Answer 1

• The extra units of output from employing one unit of labour.
• (Marginal returns of labour)
• Calculated by Change in total output/ Change in labour

Question 2

Marginal revenue product

Answer 2

• The additional total revenue gained from employing one extra unit of labour.
• Calculated by Marginal physical product x Marginal revenue

Question 3

Marginal revenue product of labour formula under perfect competition

Answer 3

As MR=AR, MRP = MPP x Price

Question 4

Determinants of demand of labour

Answer 4

• Wage rates
• Labour productivity
• Price of a substitute
• Other labour costs
• Changes in technology
• Demand for the product
• Elasticity of the demand for labour is directly linked to the elasticity of the product.

Question 5

Elasticity of demand of labour formula

Answer 5

(% change in quantity of labour) / (% change in wage rates)

Question 6

Monetary factors influencing the supply of labour

Answer 6

• Financial rewards for supplying labour

- Workers as economic agents seek to maximise their earnings

Question 7

Non monetary factors influencing the supply of labour

Answer 7

• Fringe benefits
• Working conditions
• Job satisfaction
• The economic welfare gained by leisure time

Question 8

Substitution effect

Answer 8

A higher hourly wage rate makes work more attractive than leisure, so workers substitute leisure for labour.

Question 9

Income effect

Answer 9

An increase in hourly wage means higher real income and if leisure is a normal good, the quantity of leisure demanded goes up and quantity of labour supplied down.

Question 10

Leisure time in response to wage changes

Answer 10

There’s a positive substitution effect between wage and leisure.
There’s a negative income effect between work and leisure.
Workers derive economic welfare.

Question 11

Net advantage of working formula

Answer 11

Monetary benefits + non monetary benefits

Question 12

Factors causing supply of labour to shift

Answer 12

• A change in monetary rewards
• A change in non monetary rewards
• A change in attitude towards the job
• How highly people value leisure time
• Population changes
• Changes in expectations

Question 13

Elasticity of supply of labour formula

Answer 13

% change in quantity supplied of labour/ % change in wage rate

Question 14

Determinants of elasticity of supply of labour

Answer 14

• Elasticity of supply of the product
• Time
• Availability of substitutes
• Barriers to entry (Eg. specific qualifications, length of training periods)

Question 15

Features of perfectly competitive labour markets

Answer 15

• many buyers of labour ie. firms
• Perfect knowledge regarding wage rates, jobs available and conditions in the market.
• Homogenous jobs
• Homogenous workers with the same experiences and skills.
• Many suppliers of labour ie. workers
• individual firms and workers have no impact on the wage level.

Question 16

Monopsony

Answer 16

one single buyer

Question 17

Monopsony power

Answer 17

the market power exercised in a market by the buyer or the services of FoP

Question 18

Pure monopsonistic labour market

Answer 18

• only one firm looking to higher their services so workers don’t have an alternative.
• Eg, NHS buying the services of midwives
• Many large firms exercise a high degree of monopsony power

Question 19

Occupational immobility of labour

Answer 19

When workers are unwilling or unable to move from one type of job to another
Eg. because different skills are needed

Question 20

Geographical immobility of labour

Answer 20

When workers are unwilling or unable to move from one area to another in search of work

Question 21

Trade union

Answer 21

a group of workers who join together to maintain and improve the conditions of their employment.

Question 22

Assumptions of trade unions

Answer 22

• Trade unions are a monopsony supplier of labour which is able to keep non members out.
• They can prevent members from supplying labour below union wage rate
• wage rates are determined by collective bargaining

Question 23

Trade unions influence employers through:

Answer 23

• Work to rule
• Go slow
• Overtime ban
• Strike

Question 24

Arguments to increase the national minimum wage rate

Answer 24

• Encourages people to supply labour
• Reduces inequalities
• Reduces welfare burden
• Increases aggregate demand
• Improves standard of living

Question 25

Arguments against increasing the national minimum wage rate

Answer 25

- May create unemployment - Interferes with the workings of the market mechanism - Reduces UK competitiveness - Lowers aggregate supply

Question 26

Why would a national minimum wage rate increase employment?

Answer 26

- At a higher wage, better quality workers may offer their labour, increasing MRPL. Therefore it makes sense for the firm to hire more labour as MRPL> MCL. - Higher wage rates improve job satisfaction so this is likely to lead to a more productive workforce, again increasing MRPL.

Question 27

Wage discrimination

Answer 27

Paying different workers different wages for the exact same job.

Question 28

Negative discrimination

Answer 28

Undervaluing MRP

Question 29

Positive discrimination

Answer 29

Overvaluing MRP

Question 30

Conditions necessary for wage discrimination

Answer 30

- Firms must have some wage setting power; the labour must be imperfect. - Distinct/ separate labour markets ie. workers unable to successfully offer their labour in a different market for a higher wage. - Lack of legal protection or imperfect information about the discrimination on the part of the government.

Question 31

Advantages of wage discrimination

Answer 31

- Firms can lower costs and be more competitive. - Can be difficult to successfully prove discrimination - may be beneficial to some firm sif their consumers are racially prejudiced. - Positive discrimination (affirmative action) can boost cultural diversity and social justice.

Question 32

Disadvantages of wage discrimination

Answer 32

- May lead to some groups being underpaid and underemployed worsening relative poverty. - Increased government spending on welfare benefits. - Waste of scarce, valuable resources - May lead to increased litigation as workers attempt to take legal action against employers. - Lack cultural diversity in the workplace

Question 33

Reasons for gender discrimination

Answer 33

- womens attachment to the labour market is weaker than men - women work in predominantly low paid industries - Women are underrepresented in the higher paid posts rather than women get paid less than men for the same jobs.

Question 34

Influences of the elasticity of demand for labour

Answer 34

- Demand for the product - Time - Availability of substitutes - Labour costs as a proportion of total costs

Question 35

Women's earnings compared to men

Answer 35

Women still earn 14.9% less than men for the same job and that gap could widen as public sector cuts is pushing women into private sectors, where the gap is wider.