10 Questions
What is the primary goal of a trade union in a labour market?
To increase the wage rate
What is the result of the imposition of a minimum wage in a perfectly competitive labour market?
A surplus of labour in the market
What is the term for the situation where a single buyer of labour has significant market power?
Monopsony
What is the name of the curve that shows the relationship between the wage rate and the quantity of labour supplied?
Backward-bending supply curve
What is the term for the difference in wages paid to workers in different occupations or industries?
Wage differentials
What is the process of negotiating wages and working conditions between employers and trade unions?
Collective bargaining
What is the term for the ability of workers to move freely between jobs and industries?
Mobility of labour
What is the result of a minimum wage being set above the equilibrium wage rate?
A surplus of labour
What is the term for the wage rate that is adjusted for inflation?
Real wage
What is the term for the situation where a single seller of labour has significant market power?
Bilateral monopoly
Study Notes
Labour Market
- The labour market is different from the goods market.
- The labour market involves the interaction between households and firms.
Perfectly Competitive Labour Market
- Requirements for perfect competition:
- Many firms and workers
- Free entry and exit
- Perfect information
- No externalities
- Equilibrium in the labour market:
- Where the supply and demand curves intersect
- The wage rate is determined by the intersection of the supply and demand curves
Individual Supply of Labour
- The individual supply of labour is upward-sloping:
- As the wage rate increases, the quantity of labour supplied increases
- The individual supply of labour curve shifts:
- Due to changes in the worker's preferences or opportunities
Market Supply of Labour
- The market supply of labour is the sum of individual supply curves:
- Upward-sloping due to the law of supply
An Individual Firm's Demand for Labour
- The individual firm's demand for labour is downward-sloping:
- As the wage rate increases, the quantity of labour demanded decreases
- The individual firm's demand for labour curve shifts:
- Due to changes in the firm's production technology or product demand
Market Demand for Labour
- The market demand for labour is the sum of individual firm demand curves:
- Downward-sloping due to the law of demand
Changes in Labour Market Equilibrium
- Changes in the supply of labour:
- Shifts the supply curve
- Affects the equilibrium wage rate and quantity of labour
- Changes in the demand for labour:
- Shifts the demand curve
- Affects the equilibrium wage rate and quantity of labour
Imperfect Labour Markets
- Trade unions:
- Can affect the wage rate through collective bargaining
- Can influence the government to set minimum wages
- Government intervention:
- Minimum wages can affect the labour market equilibrium
- Can lead to unemployment or changes in the labour market structure
Minimum Wages
- Minimum wage in a perfectly competitive labour market:
- Leads to unemployment
- The quantity of labour supplied is greater than the quantity of labour demanded
- Minimum wage in an imperfect labour market:
- Can lead to higher wages or changes in the labour market structure
This chapter explains the key concepts of the labour market, including the supply and demand of labour, labour market imperfections, and the desirability of minimum wages. Students will be able to identify the main differences between the labour market and the goods market and analyze various labour market imperfections.
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