What is the demand for factors of production derived from?
The demand for the product they are used to make.
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What is the demand for labour also known as?
The theory of marginal revenue productivity.
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What is the marginal revenue productivity?
The addition to a firm’s revenue from employing an additional unit of a factor of production, usually labour.
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Why is the marginal revenue productivity usually based on labour?
Because a firm’s demand for labour depends on the productivity of additional units of labour, known as marginal physical product
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What is the marginal physical product?
The addition to output from employing an additional unit of a factor of production, usually labour.
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What does the demand curve for labour show?
The relationship between the wage rate and the number of workers employed.
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What are 4 determinants of labour demand?
Wage rates, labour productivity, the price of substitute factors, other labour costs.
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What are wage rates?
The price of labour.
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How do wage rates affect labour demand?
Higher wages will lead to a contractionary movement along the demand curve for labour.
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How does labour productivity affect labour demand?
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.
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How do the price of substitute factors affect labour demand?
If capital equipment becomes cheaper, this will lead to a reduction in demand for labour.
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How do other labour costs affect labour demand?
If they increase, demand for labour will fall.
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What will a change in wage rate lead to?
A movement along the demand curve for labour.
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What will a change in other determinants lead to?
A shift of the demand curve for labour.
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What is the elasticity of demand for labour?
A measure of the responsiveness of the quantity of labour demanded following a change in the wage rate.
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How is elasticity of demand for labour calculated?
% change in quantity of labour demanded / % change in wage rate.
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What are 4 determinants of elasticity of demand for labour?
Ease of substitution, time, elasticity of demand for the good or service, proportion of labour cost to total cost of production.
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How does the ease of substitution affect elasticity of demand for labour?
The easier it is to substitute labour for other factors of production, the more elastic the demand for labour will be.
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How does time affect elasticity of demand for labour?
The longer the time period, the easier it becomes to substitute labour with other factors of production, making demand for labour more elastic.
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How does elasticity of demand for the good or service affect elasticity of demand for labour?
Since labour has derived demand, if the elasticity of demand for the good or service that workers produce is inelastic
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How does the proportion of labour cost to total cost of production affect elasticity of demand for labour?
The larger the proportion of labour cost to total cost of population, for example in labour-intensive organisations such as schools, the greater the elasticity of demand for labour.
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Other cards in this set
Card 2
Front
What is the demand for labour also known as?
Back
The theory of marginal revenue productivity.
Card 3
Front
What is the marginal revenue productivity?
Back
Card 4
Front
Why is the marginal revenue productivity usually based on labour?
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