Question

1. Outline the main factors that influence a firm’s decision to hire labour. Why do we refer to the demand for labour as a ‘derived demand.

2. Define (i) the marginal product of labour and (ii) the average product of labour.

3. Explain with the aid of diagrams, the employer’s optimal employment decision in the short-run.

4. Explain with the aid of diagrams, why the industry demand for labour curve is steeper than the sum of individual firms’ marginal revenue product of labour curves in the short-run theory of labour demand.

5. What is the industry labour demand curve and how does it differ to the firm’s labour demand curve? You should use diagrams in your answer.

6. What does it mean to suggest that labour demand is elastic? Why might an understanding of labour demand elasticity be useful to employers, unions and policy-marker?

7. How relevant is the theory of marginal productivity in the context of the pay that Chief Executive Officers (CEOs) receive? Discuss the criticisms of the marginal productivity theory and explain whether, in your opinion, these criticisms are justifiable.

8. It has been argued that the marginal productivity theory does not adequately explain the high salaries paid to Chief Executive Officers (CEOs) and top executives. Discuss this proposition, drawing on evidence and examples.

9. Drawing on the theory of labour demand, discuss the different ways that policy-makers might attempt to influence the demand for labour in the current economic climate in Ireland.

Answer 1