3.5.1 Demand for Labour

What is the labour market considered?

A factor market.

Who determines the supply of labour?

Those who want to be employed.

What drives the demand for labour?

Employers.

What is meant by 'derived demand' in the context of labour?

The demand for labour comes from the demand for what it produces.

What factors affect the demand for labour?

Wage rate, demand for products, productivity of labour, substitutes for labour, profitability of firms, and the number of firms in the market.

How does the wage rate affect the demand for labour?

Higher wages may lead firms to consider switching to capital, reducing the demand for labour.

What is the relationship between product demand and labour demand?

Higher demand for products leads to higher demand for labour.

How can productivity of labour be increased?

Through education, training, and the use of technology.

What happens to the demand for labour if substitutes for labour are available?

The demand for labour will fall, shifting the demand curve to the left.

What does the Marginal Productivity theory state?

Marginal product is the difference in total output when an extra unit of labour is added.

What is the formula for Marginal Product?

Change in total output / Change in variable input.

What is Total Physical Product?

The total output produced by a firm given the factor inputs.

What is the formula for Total Physical Product?

Average product x units of variable input.

What does Marginal Revenue Product (MRP) measure?

The addition to revenue from selling an additional unit of output.

How is MRP calculated?

Change in total revenue / Change in quantity.

What is the relationship between MRP and MPP?

MRP looks at production in monetary terms, while MPP looks at production in physical units.

What is the law of diminishing marginal returns?

Total product will rise at first and then start to decline.

What are some criticisms of MRP theory?

Challenges in measuring productivity, teamwork complicating individual productivity assessment, and the impact of imperfect labour markets.

What is the impact of having only one employer in a market?

It lowers the demand for labour compared to having many employers.

How do trade unions influence wages?

They try to encourage higher wages, especially in markets with lower demand for labour.