Chapter 7 - The labour market: Supply & demand

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Mind Map by , created over 5 years ago


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Created by usman ahmed over 5 years ago
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Economics unit 1
Chapter 7 - The labour market: Supply & demand
1 Demand for labour
1.1 Derived demand - the demand for labour is derived from the demand for the good/service produced
1.2 Determinants of a firms demand for labour
1.2.1 Price of labour
1.2.2 price of capital
1.2.3 productivity
1.2.4 supplementary labour costs - e.g training, NI contributions
1.3 Demand curve for labour
1.3.1 Derived from Marginal Revenue Product curve
1.3.2 =MRP curve from max onwards MRP=MPP*P
1.3.3 Firm doesnt demand before max because wage> MRP
1.3.4 Shifts - MRP changes, MPP or P changes
1.3.5 Elasticity of demand curve - Q before you P - Determinants Time period - short term inelastic, long term elastic Availability of substitutes. easier to replace with capital = more elastic Elasticity of demand for the product Proportion of labour costs to total costs, higher the proportion the higher the elasticity, as costs will be hit harder when recruiting
2 Supply of labour
2.1 Individual supply - Offer curve
2.1.1 Income effect - leisure becomes more affordable, trade more work for leisure
2.1.2 Substitution effect, trade off leisure for work
2.1.3 I>S, I=S , I<S
2.2 To an occupation
2.2.1 Determinants Monetary Wage/Salary Commission bonuses Non-monetary working conditions convenience hours required job security job satisfation
2.3 To a firm
2.3.1 Determinants Availability of training for labour Location of firm Level of unemployment, low unemployment =skills shortage Opportunities for overtime work
2.3.2 Supply curve Same as normal curve, S=net advantage Elasticity - %changesupplied/%wagechange Determinants Skills/qualifications needed in the job length of training period sense of vocation(suitability felt by a person), higher this sense, more inelastic time period - short term inelastic, long term inelastic

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