Labour Market MCQ 1
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Questions and Answers

What is the main idea behind the Law of Diminishing Marginal Returns?

  • The skills of the worker are the only factor that affects productivity
  • As the quantity of a fixed factor increases, output also increases
  • The quality of the capital determines the output
  • As the quantity of a variable factor increases, the marginal output eventually decreases, provided another factor is fixed (correct)

    • What is a limitation of the MRP theory in setting wage rates?

  • The selling price of the output affects the MRP
  • The quality of the capital affects the MRP
  • It is difficult to distinguish the portion of output due to the worker's productivity (correct)
  • It is difficult to measure the productivity of workers

    • What happens to the marginal output as the quantity of a variable factor increases, according to the Law of Diminishing Marginal Returns?

  • It remains constant
  • It increases at an increasing rate
  • It eventually begins to diminish (correct)
  • It increases at a decreasing rate

    • Why does the MRP curve eventually slope downwards?

    <p>Because the marginal output eventually begins to diminish</p> Signup and view all the answers

    Which type of workers does the MRP theory have difficulty in setting wage rates for?

    <p>Workers who produce services</p> Signup and view all the answers

    What is an advantage of the MRP theory in setting wage rates?

    <p>It takes into account the skills of the worker</p> Signup and view all the answers

    What is labour in the context of factor of production?

    <p>The human effort that goes into supplying goods and services</p> Signup and view all the answers

    What is the payment for labour?

    <p>Wage</p> Signup and view all the answers

    What is nominal wage?

    <p>The rate of pay or salary of an employee</p> Signup and view all the answers

    What is real wage?

    <p>The purchasing power of wages</p> Signup and view all the answers

    Which of the following is an aspect of labour?

    <p>Human effort that goes into supplying goods and services</p> Signup and view all the answers

    Study Notes

    The Law of Diminishing Marginal Returns

    • As units of a variable factor (e.g. labour) increase, combined with a fixed amount of another factor (e.g. capital), the extra output generated eventually diminishes.
    • This concept explains why the Marginal Revenue Product (MRP) curve eventually slopes downwards.

    Factors Affecting Marginal Revenue Product of Labour

    • Skills of the worker: higher skills, qualifications, and motivation lead to greater productivity.
    • Quality of capital: high-spec machinery increases productivity.
    • Ability of the employer/manager: effective motivation by the manager boosts productivity.
    • Morale due to working conditions: uncomfortable conditions lead to lower productivity.
    • Selling price of the output: affects the MRP of labour.

    Limitations of the Theory in Setting Wage Rates

    • Difficulty in measuring productivity for service workers (e.g. nurses) who don't produce a physical product.
    • Challenge in distinguishing the portion of output attributed to worker productivity when labour is used with capital.

    Labour as a Factor of Production

    • Labour refers to the human effort involved in the production of goods and services.
    • It is a fundamental factor of production, essential for creating goods and services.

    Types of Wages

    • Nominal Wage: The monetary value of an employee's wage or salary, without considering its purchasing power.
    • Real Wage: The actual value of an employee's wage or salary, taking into account its purchasing power, i.e., what it can buy in terms of goods and services.

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    Description

    Learn about the Law of Diminishing Marginal Returns, its relation to Marginal Revenue Product, and the factors affecting it, including skills of workers and quality of capital.

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