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Economics ­ The Labour Market: Demand & Supply (8.11.12)

Demand for Labour
Derived Demand:

The demand for labour (factor of production) arises from the demand for the output
that it produces
The number of workers that a firm employs depends mainly on the demand for the
output produced
A rise…

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Marginal Productivity Theory

Demand for workers depends on their Marginal Revenue Product (MRP)
The MC of taking on an additional unit of labour = MRP
MRP = Change in total output arising from hiring one more worker
The equilibrium quantity of labour employed will be established

Short Run:

Firm takes…

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Shifts in Demand Curve for Labour:

Shift to the right:

If MRP of Labour Increases (will come about if the MP of labour and/or the MR
The demand for car assembly workers will increase is the productivity of car
assembly workers rise ­ could be as a result of…

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Factors that Determine Elasticity of Demand for Labour:


In the long-run it is easier to substitute labour for other factors of production or vice
In the short-run firms may not have enough time to reorganise their operations ­
will have the employ the same number of workers even…

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Elasticity of Demand ­ Labour:

The Supply of Labour:

Consists of all of those that are economically active (In work or actively seeking work)

The Participation Rate or Activity Rate is the percentage of the population of working age
that is economically active

The Supply of Labour to a particular…

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Adam Smith ­ "Net Advantage"

Overall reward, taking into account monetary and non-monetary factors should be equal
across the various industries in which a particular occupation could be practiced

Occupations with satisfying non-monetary features may have a higher supply at a
given wage ­ potential employees would be prepared to…

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The Elasticity of Supply of Labour:

Measures the responsiveness of the quantity of labour supplied to a change in the real
wage rate; it will vary from industry to industry

Elastic = Small change in wage rate = Large change in quantity of labour supplied

Inelastic = Small change in…

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Comprehensive notes on the factors affecting the demand for and supply of labour including marginal productivity theory. About 8 pages in length.

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