3.5.1 Demand for labour

• What is the demand for labour defined as?

  Workers firms employ at a wage rate
• Higher wages typically increase the demand for labour.

  False
• How does higher productivity affect the demand for labour?

  Increases demand
• Increased consumer demand for a firm's products leads to higher labour demand
• Cheaper capital can reduce the demand for labour.
• What happens to wage elasticity of demand when labour intensity is high?

  Becomes elastic
• Derived demand for labour stems from the demand for the goods and services it helps to produce
• Order the factors influencing derived demand for labour based on their impact.

  1️⃣ Product demand increases

  2️⃣ Productivity rises

  3️⃣ Price of capital falls
• What is the relationship between product demand and labour demand?

  $Demand for Labour ∝ Demand for Goods and Services$
• Higher labour productivity reduces the demand for workers.
• What is the derived demand for labour based on?

  Demand for goods and services
• Key factors influencing demand for labour include wage rate, productivity, market demand for products, and the cost of capital
• A wage rate increase makes labour more affordable and increases demand.

  False
• What is derived demand for labour dependent on?

  Product demand
• The demand for labour is influenced by wage rate, productivity, market demand for products, and the cost of capital
• What is the impact of a wage rate increase on labour demand?

  Decreases labour demand
• When wages decrease, firms may hire more workers.
• What happens to labour demand when product demand increases?

  Increases
• Cheaper capital can substitute labour, decreasing labour demand
• The derived demand for labour arises from the demand for the goods and services it produces.
• How does higher labour productivity affect labour demand?

  Decreases it
• Higher labour productivity leads to a decrease in the demand for labour
• What happens to labour demand if the price of capital decreases?

  Decreases
• The relationship between product demand and labour demand is directly proportional.
• What is one factor that reduces the demand for labour?

  Higher wages
• Higher wage rates typically reduce the demand for labour
• Order the steps to explain the relationship between wage rate and demand for labour:

  1️⃣ Wage rate increases

  2️⃣ Firms reduce labour demand

  3️⃣ Firms seek cost minimization

  4️⃣ Higher labour costs reduce profitability
• What is the impact of a decrease in the wage rate on labour demand?

  Increases
• An increase in the wage rate leads to a decrease in labour demand.
• Productivity refers to the output per worker
• How does higher productivity affect the demand for labour?

  Increases