Many factors determine the supply and demandfor labor. Identify and explain two

Question

Many factors determine the supply and demandfor labor. Identify and explain two factors that would increase ordecrease the demand for labor. Identify and explain two factorsthat would increase or decrease the supply of labor. Your answershould include a discussion on marginal revenue product. I believeit would be difficult to answer this question correctly withoutreferring to that topic. One way to approach this question wouldbe:

1.    Define marginal revenue product, and thendiscuss how this can change. Then relate this to the change indemand for labor.

2.    Explain the determinant of labor supply.Explain what might change one of these determinants.

When answering this question would be a goodtime to review the difference between a change in quantity demandedand a change in demand and the difference between a change inquantity supplied and a change in supply. Remember, wage rates [theprice to rent labor] will have no effect on either the supply orthe demand for labor!

Explanation / Answer

When firm maximize the unit of production at the point MC=MR. Ifthe demand of the goods increase, it will move the demand curve tothe right, the price of goods become higher. So, marginal revenuealso increase. To maximized profit, firm will produce more. Firmneed to hire more people, this increase the demand of labor curve.The second factor to affect the demand of labor force might be someimprovement of technology. The improvement might reduce the cost ofthe goods and firm decide to produce more. This might also increasethe labor demand. The supply of labor determine by the opportunity to boost theearnings and substitute occupations. If this works got moreopportunity to get benefit from it, the supply curve will increase.These benefits including good payment, allowance, getting higherposition and etc. Moreover, if the people can easily substitute toother sectors, the supply of labor also will be affected easily. Asthey though could get benefit in other sector, the supply of laborwould decrease.

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