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The demand for labour is highly dependent on the productivity of the worker the more the worker adds to revenue, the higher the demand.
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MRP = MPP x P
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ARP
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5.50
ARP
MCL
MRP = MPP x P
20 21
Number Employed
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10
DL
10 15 19
Number Employed
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The net effect depends on the relative strength of the income and substitution effects
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The willingness of people to move The cost and availability of housing in different areas The extent of social, cultural and family ties The amount of information available to workers about jobs in other areas The cost of re-location Anxiety of the idea of re-location
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SL
An inelastic supply of labour a substantial rise in the wage rate only brings forth a small increase in the amount of people willing and able to do such work. The reason may be the number with those particular skills and qualifications, the time it takes to get those skills, geographical immobility etc.
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SL
5.50 5
35
45
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7.50 6.00
Excess Demand
DL
Q1 Q2
DL1
Number employed
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6.00
5.00
SL1
Excess Supply
DL
Q1 Q2
Number employed
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Economic Rent
Wage Rate ( per hour)
SL
The supply of labour curve shows the relationship between the wage rate and the number of people offering their labour in terms of the number of hours worked. At a wage rate of 6.00 per hour, employees are willing to offer Q1 hours. Some in the market are not willing to work for any less than that and some would be willing to work for less than 5.00. The area under the supply curve is referred to as the Transfer Earnings of the factor.
6.00
Transfer Earnings
Q1
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Economic Rent
Wage Rate ( per hour)
Some individuals Those individuals would have been 6.00 per shown The total valueworkearnhours for ishour prepared to of economic rent 4.00 Q2 they yellow shaded triangle. byper therefore earn an amount in excess thehour. than they were prepared to offer their
SL
services for this is termed Economic Assume that 6.00 per hour is the Rent. market wage rate for this current factor.
6.00
Economic Rent
4.00
DL
Q2 Q1 Number of hours worked
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Economic Rent
SL1 SL
The total earnings of the factor is the wage rate x the hours worked The lower the elasticity of supply of indicated by the grey rectangle. labour, the greater the economic These earnings this in relationof an rent think about are made up to element of transfer earnings and soccer stars! an element of economic rent.
W2
Economic W1 Rent