Problem

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Demand of labor

Why is the demand of labor a derived demand? Explain the shape of the supply of labor curve. What is the
relationship between productivity and the wages earned by an employee? What are some factors that
determine the level of your income?
Solution Summary

Demand of labor

Posting ID:334321 - Economics, Microeconomics - Other

Created:
Aug-09-2010
Solution By OTA:
107335, Albert Li, MSc

Solution

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Demand for labour is a derived demand because the demand for labour is a result of demand for other
things (such as goods and services). Nobody would demand labour alone, instead, people demand for
goods, the in the production of goods, labour is then demanded (hence it is a derived good).

The shape of the supply of labour curve is like any other supply curve, it is upward sloping.

The relationship between productivity and the wages earned by an employee is described by the marginal
rule. In short, your wage represents your marginal productivity, ie if a society without Tom can produce
$4mil every year, and another society, identical to the first one but with Tom, can produce $4.2mil every
year, then Tom's wage should be his marginal productivity, which is 0.2mil.

The primary factor that determine level of income is your productivity. The more productivity you are, the
higher wage you should be paid. There are a few factors that affects income indirectly, such as education,
training, access to resource. All of these indirect factors will increase you productivity (a person with higher
education is generally considered to be more productive), and hence affects your wage rate.