23 Questions
What is the real wage if the money wage is $10 per hour and the price index is 2.0?
5
What is the shape of the aggregate labour demand curve?
Downward sloping
What happens to the labour supply curve when the real wage increases?
It shifts to the right
What is the marginal product of labour (MPL) when 4 workers are employed?
4
What is the effect of an increase in the price index on the labour demand curve?
It shifts to the left
What is the labour supply curve sloping upward indicating?
People are willing to work more at a higher real wage
What is the aggregate labour demand curve a function of?
Both the real wage and the marginal product of labour
What is the effect of an increase in the marginal productivity of labour on the labour demand curve?
It shifts the labour demand curve to the right
What is the real wage in the economy if the money wage is $10 per hour and the price index is 2.0?
$5 per hour
If the aggregate price level increases, what happens to the aggregate labour demand curve?
It shifts to the left
What is the relationship between the marginal productivity of labour and the real wage?
MPL is equal to the real wage
How does an increase in the price index affect the labour demand?
It decreases the labour demand
What is the condition for a firm to be in equilibrium in the labour market?
MPL is equal to the real wage
What happens to the labour demand curve when the money wage increases?
It shifts to the left
What is the effect of an increase in the aggregate money wage on the aggregate labour demand?
It decreases the aggregate labour demand
What is the primary factor that influences the size of the working-age population?
Birth rate
What is the result of a higher participation rate in the labour market?
A rightward shift of the labour supply curve
What is the effect of higher productivity on the real wage and employment?
An increase in the real wage and employment
What is the role of unions in the competitive labour market?
To increase the real wage above the competitive equilibrium
What is the effect of a price index on the labour demand curve?
No effect
What is the result of a minimum wage law in the labour market?
Unemployment
What is the primary factor that determines the labour demand curve?
Marginal productivity of labour
What is the relationship between the labour demand and supply curves in the competitive labour market?
The labour demand curve is downward sloping and the labour supply curve is upward sloping
Study Notes
Labour Demand Curve
- The labour demand curve is a downward sloping curve that shows the relationship between the real wage (W/P) and the number of workers demanded
- The curve is downward sloping because as the real wage increases, the quantity of labour demanded decreases
- The curve is also known as the MPL (Marginal Product of Labour) curve
Labour Supply Curve
- The labour supply curve is an upward sloping curve that shows the relationship between the real wage (W/P) and the number of workers supplied
- The curve is upward sloping because as the real wage increases, the quantity of labour supplied also increases
- Labour supply is generally assumed to be an increasing function of the real wage (W/P)
Shifts in Labour Demand Curve
- An increase in the relative price of the firm's output (p) shifts the labour demand curve to the left
- An increase in the marginal productivity of labour (MPL) shifts the labour demand curve to the right
Aggregate Labour Market
- The aggregate labour market combines the labour demand and supply curves to determine the equilibrium real wage and employment level
- The aggregate labour demand curve is downward sloping, while the aggregate labour supply curve is upward sloping
- The equilibrium real wage and employment level are determined where the two curves intersect
Factors that Shift Labour Supply Curve
- The size of the working-age population (influenced by birth rate, retirement ages, immigration rates) shifts the labour supply curve
- The participation rate (percentage of working-age population seeking employment) also shifts the labour supply curve
Frictions in Competitive Model
- Involuntary unemployment arises when the unemployed would be willing to accept a job at the current market wage but are not able to find employment
- Factors that increase the real wage above the competitive equilibrium, such as minimum wage laws, unions, and taxes, can lead to involuntary unemployment
This quiz is based on the concept of Aggregate Labour Demand Curve, which is a fundamental concept in economics. It deals with the relationship between the labour demand and wage rate. The quiz is based on a table that shows the labour demand and wage rate at different levels of employment.
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