3.5.1 demand for labour

Who demands labour?

firms/employers

What does demand curve for labour for individual firm show?

How many workers will be hired at any given wage rate over period of time.

What type of demand is the demand for labour?

derived demand
Need for them to produce goods and services

What is marginal revenue product?

The extra revenue generated when an additional worker is hired
What firms base demand decisions for labour on

What is the MRP calculation?

MRP= Marginal physical product (MPP) x Marginal revenue (MR)

What is MRP curve?

-equal to the demand curve for labour

• increases to a point(specialisation

What is the wage rate equal to?

marginal cost of labour

• both constant

What do firms do to hire efficiently and max rev bought in by workers

Firms keep hiring workers until MRP= Wage/ marginal cost of labour

Why is there an inverse relationship between wage and Qof workers in demand curve for labour?

SR- law of diminishing returns
LR- substitutability of labour and capitalwh

What are shape of labour demand curve for firm and industry/market?

Both: downward sloping due to MRP
Firm: increases to point of diminishing returns then decease
Industry: straight downward sloping

What happens when wages go up/ down in industry?

Up- contraction of labour demand- fall in QofW
Down- extension of labour demand- increase QofW

What is elasticities of labour demand?

Measures responsiveness of labour demanded given a change in the wage rate
Wage elastic demand market- proportionate change in labour demand is greater than change in wage
Wage inelastic- proportionate change in labour demanded is less than change in wage

What are the factors that determine elasticities labour demand curve?

SECT
Substitutability of capital for labour
Elasticity of demand for the product
Cost of labour as a percentage of total cost
Time period- difficult to increase land in sr etc.

What are the non wage factors that can shift labour demand?

PDPC

• change in final Price of product
• change in Demand for final product
• change in Productivity
• change in price of Capital