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QUESTION 1: DERIVED DEMAND The demand for labour is therefore considered a 'derived demand'. The demand for labour is derived from the ____________demand for the goods and services that the labour can __________. The amount that labour can produce is therefore a critical ___________________ of demand. POSSIBLE ANSWERS: determinant , produce ,demand,

QUESTION 2: DEFINITIONS MATCH COLUMN B WITH CONCEPT IN COLUMN A COLUMN A 1. Marginal physical product COLUMN B A. The value of the increase in output from employing one more unit of the variable factor. It is calculated by multiplying the Marginal Physical Product by the Marginal Revenue (equal to the price in perfect competition).

2. Marginal revenue product

B. The increase in output resulting from employing an extra unit of the variable factor.

QUESTION 3: TABLE AND GRAPH Use these definitions to fill in the table and answer the questions below:
No. of people Wage rate ( per day) Marginal Physical Product Price of Product () Marginal Revenue Product















N.B. We are assuming perfectly competitive markets and all figures are daily ones. Use the table to plot the Marginal Revenue Product Curve. (You may want to put the figures into a spreadsheet package to do this or you can use the axes below).

1. How many people will the firm employ at a wage rate of 30 per day? _____________ 2. If the wage rate was to rise to 60 per day, how many people would the firm employ? _____________

3. Show these points on your diagram. 4. If the price of the product was to rise to 10 what would happen to the MRP curve? |

5. What would happen to the MRP curve if the productivity of labour (the MPP) fell? |

6. Show both these changes from questions 4 and 5 on your diagram We can see from all this that the MRP curve shows the number of people employed at each wage rate. This means that the MRP curve represents the demand curve for labour. Any change in the productivity of labour or the price of the product will shift the demand curve. Any change in the wage rate and the firm will simply move along the MRP curve and alter the amount of labour they employ. QUESTIO 3: DEMAND AND SUPPLY IN LABOUR MARKET Where demand and supply are equal will be the equilibrium. This equilibrium may change when demand or supply change. The table below considers the market for Internet programmers - people who can write and design web sites. Consider whether you would expect demand or supply to shift, and therefore whether wages would rise or fall:
The market for Internet programmers


Demand or supply shift?

Left or right?

Effect on wages - up or down?

1. Internet marketing by companies starts to take off rapidly as new secure encryption is worked out to protect people's money

2. New Internet programming languages require a much longer training period for programmers

3. A large number of extra computer science undergraduates graduate and start looking for work

4. The novelty of the Internet starts to fade and people begin to use it a lot less

Show each of these changes on the diagrams below: No.1 No.2