define derived demand
when the demand for the end product has effect on the demand of a good
Define the Marginal Physical Product of Labour (MPPL)
the addition to output produced by one more unit of labour
what is the law of diminishing marginal returns
when you add more of a variable factor to a fixed factor eventually the marginal product (MP) starts to fall
define marginal revenue product and write the formula
the value of the output produced by the last unit of labour added. MRP = MPP x MR
Draw an MRP curve/the demand curve for labour
Wage y axis quantity of labour x axis fixed wage rate as horizontal line (We) MRP curve going up and then going down past straight line (S=AC=MC) equilibrium We Qe
What is Marginal Productivity Theory
states that a firm will employ labour up to a point at which the MRP of labour is equal to the Marginal Cost of the extra worker. in this way the firm will be profit maximising.
identify and explain four factors that would shift the demand curve for labour
- if the price of the end product increased - this would increase the marginal revenue and so the MRP would increase.
- if the MPP increased because of an improvement in the productivity of labour, this would also increase MRP
- a fall in non-wage costs of employing workers - this would make it cheaper for firms to employ workers and increase demand at every price level
- an increase in the price of capital that replaces labour - this would make the subsitute to labour cheaper, and so firms may swap labour for capital, reducing demand for labour
what is the formula for calculating the Marginal Product if you were given a table of data?
change in labour
identify and explain four factors that would affect the elasticity of demand for labour
- availability of capital that could replace labour - if labour is easily replaceable with a machine, then demand will be elastic.
- price elasticity of the end good - if this is very inelastic, then firms can pass on any wage increase in higher prices, without worrying too much about losing market share making demand for labour inelastic.
- labour cost as a % of total costs - the higher the % of costs made up by labour, the more elastic for demand for labour will be.
- time - the longer the time period, the more elastic demand for labour will be, as the firm will be able to find ways of substituting labour
using MRP theory, explain why a footballer gets paid more than a plumber
the extra revenue generated by a footballer in higher ticket sales, and increased merchandise and advertising/sponsorship revenue means that the MR is higher than a plumber.
what is the relationship between leisure time and work?
they are substitutes. a person can choose to allocate their time to leisure OR work, but cannot do both at once.
what is the opportunity cost of one hour of work
one hour of leisure
what is meant by the substitution effect of a wage increase
this is when wages increases, it increases the opportunity cost of leisure, so workers will substitute leisure hours for work hours, creating a positive relationship between work and wages.
what is meant by the income effect of a wage increase?
this is when a worker has a target income and once they have achieved this income, then any further wage rises will lead to that individual reducing their work time and taking more leisure, in this case leisure is a normal good so people will want to consume more of it when their income rises. this suggests that there might be a negative relationship between wages and hours worked.
why might an individual’s supply of labour be backward bending
this is when the income effect outweighs the substitution effect of a wage rise, and the individual start to supply more of their labour, the more the wage rises.
what is the supply curve of labour also known as
the average cost curve of labour - this shows us how many workers would be prepared to supply their labour at each wage rate and therefore the average wage is equal to the average cost of firm
other than wages identify 3 other factors that would affect an individual’s supply of labour
- potential for promotion
- job satisfaction
- non monetary benefits
what is meant by non monetary benefits
rewards that are not cash, such as access to facilities, health insurance, and holiday entitlement
draw an industry supply curve of labour
wage y axis
q of labour x axis
normal supply curve
identify 5 factors that would affect the supply of labour
- immigration
- improvements in occupational and geographical immobility of labour
- requirement for qualifications
- welfare/out of work benefits
- wages and conditions in other jobs
draw a curve representing the supply of labour to an individual firm, when the labour market is perfectly competitive
wage rate y axis
q of labour x axis
Wage rate horizontal line S = AC = MC
MRP(L) curve going up and then down past wage rate line
draw a curve representing the supply of labour to an individual firm, when the labour market is monopsonistic
two skewed supply curves. left one MC of labour, right one is supply of labour. one MRP = D curve wages y axis q of labour x axis equilibrium at mrp and supply curve inward shift
define geographic immobility of labour
when a worker cannot/will not move from one location to another to take up a job vacancy
what are the causes of geographic immobility
- house price differentials
- family ties
- children schooling
- lack of knowledge
