3.5.1 - demand for labour

labour market - who supplies who demands

supply: workers

demand: firms

what kind of demand is demand for labour

derived demand - depends on the demand for goods/services

define marginal physical product

the physical addition to output of an extra unit of a variable factor of production

define marginal revenue product

the value of the physical addition of an extra unit of a variable factor of production (extra revenue generated when an additional worker is employed)

define total physical product

the total output of a given quantity of factors of production

define unit labour cost

the cost of employing labour per unit of output or production

4 factors influencing the demand for labour

price of g+s produced

demand for g+s produced

ability to substitute labour with machinery

productivity of labour (marginal revenue product!!)

price of g+s produced

high price = higher demand for labour:

high price = higher marginal revenue product of labour
high price = incentive to supply more (upwards sloping supply curve

demand for the final product

high demand = higher demand for labour

usually in an economic boom

ability to substitute

more cost-effective to switch = lower demand for labour

productivity of labour

high productivity = higher demand for labour

productivity often increases through training

define wage elasticity of demand for labour

how responsive demand for labour is after a change in wages

6 things wage elasticity of demand of labour depends on

how essential/replaceable is the worker (what substitutes are there?)

how many people have the necessary qualifications

time period

proportion of wage costs

derived demand (demand for the goods itself)