Econ 110A Week Ten: The Labour Market

These flashcards cover key vocabulary and concepts related to the Labour Market, including definitions and explanations of principles affecting labour demand, supply, and market equilibrium.

Labour Market

The market where firms (employers) and workers (employees) interact to determine wages, hours, employment, and working conditions.

Labour Demand

The demand for workers by firms, which depends on the wage rate and is influenced by various factors.

Marginal Revenue Product of Labour (MRPL)

The additional revenue generated from employing one more unit of labour, calculated as the marginal product of labour times the price of the output.

Substitution Effect

The economic principle whereby an increase in wage makes leisure comparatively more expensive, leading workers to supply more labour.

Income Effect

The change in labour supply that occurs when an increase in wage increases income, causing workers to substitute leisure for work.

Market Labour Supply Curve

The curve that shows the relationship between the wage rate and the total hours of labour supplied by all workers in a specific occupation.

Rational Rule for Employers

Employers should hire additional labour until the wage equals the marginal revenue product.

Labour Supply Shifters

Factors that can cause the labour supply curve to shift, such as changes in wages in other occupations, demographic changes, benefits of not working, and non-wage benefits.

Equilibrium in the Labour Market

The point where labour demand equals labour supply, determining the wage rate and quantity of hours worked.

Backward-Bending Supply Curve

A situation where the labour supply curve slopes upward at lower wages but bends backward at higher wages due to the dominance of the income effect.