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Description
Flashcards by Oliver Philpott, updated more than 1 year ago
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Created by Oliver Philpott
about 7 years ago
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| Question | Answer |
| Derived Demand | The demand for factors of production, such a labour, is derived from the demand for the product they are used to make. |
| Marginal productivity theory | The demand for labour is also known as the theory of marginal revenue productivity. This is because a firm's demand for labour depends on the productivity of additional units of labour, known as the marginal physical product multiplied by the selling price of the product. |
| Marginal revenue product (MRP) | The addition to a firm's revenue from employing an additional unit of a factor of production, usually labour. |
| Marginal physical product (MPP) | The addition to output from employing an additional unit of a factor of production, usually labour. |
| Demand curve for labour | Usually referred to as the MRP, shows the relationship between the wage rate and the number of workers employed. Equal to the MPP in the labour market multiplied by the MR obtained in the market for the firm's product. |
| Determinants of labour demand: wage rates | Wage rates: as wages are the price of labour, higher wages will lead to a contractionary movement along the demand curve for labour. |
| Determinants of labour demand: labour productivity | Labour productivity: as the output per worker per hour increases, this makes them more valuable to an employer and will lead to an increase in demand for labour. |
| Determinants of labour demand: the price of substitute factors | If for example, capital equiptment becomes cheaper, this will lead to a reduction in demand for labour, as seen in the market for supermarket checkout assistants. |
| Determinants of labour demand: other labour costs | Other labour costs: these include employers national insurance and pension contributions. If these increase, demand for labour will fall. |
| Elasticity of demand for labour | The measure of the responsiveness ofthe quantity of labour demanded following a change in the wage. %change in quantity of labour/% change in wage rate |
| Determinants of elasticity of demand for labour: ease of substituton |
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