Labour demand

Question 1

what does the labour demand curve show

Answer 1

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

Question 2

what do firms base their demand decisions for labour on

Answer 2

MRP

Question 3

what is MRP and how is it calculated

Answer 3

Marginal Revenue Product, extra revenue generated when an extra worker is hired, MRP=MPP times P/MR

Question 4

firms will hire workers up until

Answer 4

MRP=W/MCL, any more or any less, the firm is not profit maximising

Question 5

why is there an inverse relationship between wages and quantity of workers

Answer 5

SR- law of diminishing returns, LR- FoP are variable, substitutability of labour and capital, lower workers at higher wages

Question 6

criticisms of MRP

Answer 6

how do we measure productivity? (teachers), teamwork makes it difficult to measure individual productivity, self employed? not payed in line with MRP, imperfect labour markets? (trade unions)

Question 7

what can cause a shift in demand curve, excluding wages (PDPC)

Answer 7

change in price of final product, change in demand for final product, change in labour productivity (MPP), change in price of capital

Question 8

what is elasticity of demand for labour

Answer 8

measures responsiveness of labour demanded given a change in the wage rate

Question 9

elasticity of demand for labour (SECT)

more or less elastic wages

Answer 9

an increase in substitutability increase elasticity, elasticity of demand for product, inelastic demand= inelastic wages, higher cost of labour as percentage of total cost= elastic wages, long run= more elastic (FoP), short run= inelastic