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Firms demand workers because consumers demand the final product that those workers help produce."},{"text":"derived from the supply of the final product","correct":false,"explanation":"Confusing supply with demand reverses the relationship. Labour demand is derived from demand for the final product because sales determine the value of employing workers."},{"text":"determined only by the wage rate","correct":false,"explanation":"The wage influences the quantity of labour demanded, but it is not the sole determinant. Labour demand is derived from demand for the final product."}]},{"id":"465ba785-06ea-4060-b402-84eab19141dc","cardType":"basic","points":2,"front":"Why do firms demand labour?","back":"Firms need workers for the output they produce.","mcqOptions":[{"text":"Firms need workers for the output they produce.","correct":true,"explanation":"Labour is a factor of production used to create output. Firms therefore demand workers because their output can be sold to generate revenue."},{"text":"Firms need workers for the wages they receive.","correct":false,"explanation":"Wages are a cost paid by firms, not the reason firms hire. Firms demand workers for the output those workers produce and help sell."},{"text":"Firms need workers for the leisure they sacrifice.","correct":false,"explanation":"Sacrificed leisure helps explain workers’ labour supply, not firms’ labour demand. Firms employ workers because of the output they produce."},{"text":"Firms need workers for the unemployment they reduce.","correct":false,"explanation":"Reducing unemployment may benefit society, but it is not normally a firm’s hiring motive. Firms demand labour for the output workers produce."}]},{"id":"e1f29265-df00-49cf-93f2-b7331590677c","cardType":"basic","points":1,"front":"What happens to labour demand when demand for the final product falls?","back":"It reduces labour demand.","mcqOptions":[{"text":"It reduces labour demand.","correct":true,"explanation":"Lower product demand reduces expected sales and workers’ marginal revenue product, so firms demand less labour at each possible wage rate."},{"text":"It increases labour demand.","correct":false,"explanation":"This reverses the derived-demand relationship. Lower final-product demand reduces expected revenue and therefore reduces firms’ demand for the labour producing it."},{"text":"It leaves labour demand unchanged.","correct":false,"explanation":"Assuming no change overlooks that labour demand is derived. When final-product demand falls, workers generate less revenue, so labour demand decreases."},{"text":"It eliminates labour supply.","correct":false,"explanation":"A fall in product demand affects firms’ demand for workers, not households’ willingness to work. It reduces labour demand rather than eliminating labour supply."}]},{"id":"a29a5d08-1569-4ee1-b77d-7e7f5b824ea8","cardType":"basic","points":2,"front":"Why does a higher wage reduce the quantity of labour demanded?","back":"Firms employ fewer workers because employment costs rise.","mcqOptions":[{"text":"Firms employ fewer workers because employment costs rise.","correct":true,"explanation":"A higher wage raises the marginal cost of employing labour. Fewer workers have marginal revenue products high enough to cover that increased cost."},{"text":"Firms employ more workers because employment costs rise.","correct":false,"explanation":"This reverses the usual response to a higher input price. Rising employment costs make fewer workers profitable, so firms reduce the quantity of labour demanded."},{"text":"Firms employ fewer workers because employment costs fall.","correct":false,"explanation":"The quantity conclusion is right but the reasoning is reversed. A higher wage raises employment costs, causing firms to employ fewer workers."},{"text":"Firms employ more workers because productivity automatically rises.","correct":false,"explanation":"Higher pay does not automatically raise productivity enough to justify extra hiring. The direct effect is higher employment cost, so firms demand fewer workers."}]},{"id":"de25fa90-24c4-4f4a-b807-f1a8270d2aa1","cardType":"cloze","points":null,"front":"Marginal revenue product is calculated as $\\text{[...]}$.","back":"Marginal revenue product is calculated as $\\boxed{\\text{MRP} = \\text{MPP} \\times \\text{MR}}$.","mcqOptions":[{"text":"$$\\text{MRP} = \\text{MPP} \\times \\text{MR}$","correct":true,"explanation":"Marginal physical product gives the extra output from another worker, while marginal revenue gives each unit’s revenue; multiplying them yields marginal revenue product."},{"text":"$$\\text{MRP} = \\text{MPP} + \\text{MR}$","correct":false,"explanation":"Adding output units to revenue per unit mixes incompatible quantities. MRP is found by multiplying marginal physical product by marginal revenue."},{"text":"$$\\text{MRP} = \\text{MPP} \\div \\text{MR}$","correct":false,"explanation":"Division does not calculate the revenue generated by extra output. Multiply the additional output, MPP, by the revenue per extra unit, MR."},{"text":"$$\\text{MRP} = \\text{MR} \\div \\text{MPP}$","correct":false,"explanation":"This inverted ratio gives revenue per unit of additional output rather than a worker’s revenue contribution. The correct calculation is MPP multiplied by MR."}]},{"id":"9e79940a-9e5c-4f46-88fd-1ef57b369954","cardType":"basic","points":1,"front":"What does a worker's marginal revenue product measure?","back":"The value of the extra output produced by one more worker.","mcqOptions":[{"text":"The value of the extra output produced by one more worker.","correct":true,"explanation":"A worker’s marginal revenue product is the additional revenue generated by employing that worker, equal to extra physical output multiplied by marginal revenue."},{"text":"The cost of the total output produced by one more worker.","correct":false,"explanation":"MRP concerns additional revenue, not the cost of total production. It measures the value of the extra output generated by one more worker."},{"text":"The quantity of the extra output produced by one more worker.","correct":false,"explanation":"This describes marginal physical product, which counts additional units. MRP instead measures the revenue value of the extra output from one more worker."},{"text":"The value of the average output produced by one more worker.","correct":false,"explanation":"Using average output confuses average and marginal measures. MRP values the extra output attributable to one additional worker, not output per worker overall."}]},{"id":"12273553-a509-45de-bd82-d15b4f75977b","cardType":"basic","points":2,"front":"How does marginal physical product differ from marginal revenue product?","back":"MPP measures extra output units; MRP measures their revenue value.","mcqOptions":[{"text":"MPP measures extra output units; MRP measures their revenue value.","correct":true,"explanation":"MPP is a physical quantity, whereas MRP converts that additional production into money by multiplying the extra units by marginal revenue."},{"text":"MPP measures total output units; MRP measures their production cost.","correct":false,"explanation":"This confuses marginal measures with totals and revenue with cost. MPP measures extra output units, while MRP measures the revenue value of those units."},{"text":"MPP measures extra revenue earned; MRP measures its physical quantity.","correct":false,"explanation":"The definitions have been reversed. MPP measures extra physical output, while MRP measures the revenue value generated by that extra output."},{"text":"MPP measures average output units; MRP measures their market price.","correct":false,"explanation":"MPP is marginal rather than average, and MRP is additional revenue rather than simply price. They measure extra output and its revenue value respectively."}]},{"id":"730e251c-9af5-45e7-b565-71da62a91978","cardType":"cloze","points":null,"front":"The firm's labour demand curve is its [ ].","back":"The firm's labour demand curve is its MRP curve.","mcqOptions":[{"text":"MRP curve","correct":true,"explanation":"At each wage, a profit-maximising firm hires until wage equals MRP. The MRP curve therefore shows the quantity of labour demanded at different wages."},{"text":"MPP curve","correct":false,"explanation":"MPP records extra physical output but does not value it against the wage. The labour demand curve is the MRP curve because hiring depends on revenue contribution."},{"text":"labour supply curve","correct":false,"explanation":"Labour supply represents workers’ willingness to work, not firms’ hiring decisions. A firm’s labour demand curve is its marginal revenue product curve."},{"text":"average revenue curve","correct":false,"explanation":"Average revenue concerns revenue per unit of output and does not show each worker’s contribution. The firm’s labour demand curve is its MRP curve."}]},{"id":"b0b25aaa-d170-42c3-88a5-b34f53684dc4","cardType":"basic","points":2,"front":"What hiring rule does a profit-maximising firm follow?","back":"Hire while MRP exceeds the wage; stop where they are equal.","mcqOptions":[{"text":"Hire while MRP exceeds the wage; stop where they are equal.","correct":true,"explanation":"Each worker adds profit while their marginal revenue product exceeds their wage cost. Profit is maximised at the employment level where MRP equals the wage."},{"text":"Hire while the wage exceeds MRP; stop where they are equal.","correct":false,"explanation":"This reverses the profitability condition: a wage above MRP means the worker costs more than they generate. Firms hire while MRP exceeds the wage."},{"text":"Hire while MPP exceeds the wage; stop where they are equal.","correct":false,"explanation":"MPP is measured in output units and cannot be compared directly with a monetary wage. Firms compare the wage with MRP and stop when they are equal."},{"text":"Hire while MRP equals the wage; stop when MRP is higher.","correct":false,"explanation":"Stopping when MRP becomes higher would reject profitable workers. Firms continue hiring while MRP exceeds the wage and stop at equality."}]},{"id":"06c42e4f-cb45-41c1-8ce6-50abc03a15b5","cardType":"basic","points":2,"front":"Why do diminishing marginal returns cause MRP to fall?","back":"Each extra worker adds less physical output, reducing MRP.","mcqOptions":[{"text":"Each extra worker adds less physical output, reducing MRP.","correct":true,"explanation":"With other factors fixed, diminishing marginal returns make each additional worker’s MPP smaller. Since MRP equals MPP multiplied by MR, MRP also falls."},{"text":"Each extra worker adds more physical output, reducing MRP.","correct":false,"explanation":"More physical output would normally raise MRP if marginal revenue were unchanged. Diminishing returns mean each extra worker adds less output, causing MRP to fall."},{"text":"Each extra worker earns a higher wage rate, reducing MRP.","correct":false,"explanation":"The wage is a labour cost and does not determine the worker’s revenue product. MRP falls because diminishing returns reduce each additional worker’s physical output."},{"text":"Each extra worker adds less physical output, increasing MRP.","correct":false,"explanation":"This gets the physical effect right but reverses its revenue consequence. With marginal revenue unchanged, less extra output produces a lower, not higher, MRP."}]},{"id":"a43ce9cc-ea34-4da6-917e-a2acfe72d9ea","cardType":"basic","points":1,"front":"What is the MRP of a worker adding $10$ units when marginal revenue is $\\pounds 5$ per unit?","back":"$\\pounds 50$.","mcqOptions":[{"text":"$\\pounds 50$.","correct":true,"explanation":"MRP equals MPP multiplied by marginal revenue. Multiplying $10$ extra units by $\\pounds 5$ per unit gives an MRP of $\\pounds 50$."},{"text":"$\\pounds 15$.","correct":false,"explanation":"Adding $10$ and $\\pounds 5$ incorrectly combines output and revenue. Multiplication is required, giving $10 \\times \\pounds 5 = \\pounds 50$."},{"text":"$\\pounds 25$.","correct":false,"explanation":"This result understates the worker’s contribution, typically by halving the required product. Multiplying all $10$ extra units by $\\pounds 5$ gives $\\pounds 50$."},{"text":"$\\pounds 2$.","correct":false,"explanation":"Dividing $10$ by $\\pounds 5$ uses the wrong operation and produces incompatible units. MRP requires multiplication, so the answer is $\\pounds 50$."}]},{"id":"46b5a089-9df0-4f02-ad49-5782658d96d2","cardType":"basic","points":2,"front":"Why does the worked-example firm stop at two workers when the wage is $\\pounds 45$?","back":"The third worker's $\\pounds 35$ MRP is below the $\\pounds 45$ wage.","mcqOptions":[{"text":"The third worker's $\\pounds 35$ MRP is below the $\\pounds 45$ wage.","correct":true,"explanation":"Hiring the third worker would add only $\\pounds 35$ of revenue but cost $\\pounds 45$, reducing profit by $\\pounds 10$."},{"text":"The third worker's $\\pounds 35$ MRP is above the $\\pounds 45$ wage.","correct":false,"explanation":"This comparison is numerically reversed because $\\pounds 35$ is below $\\pounds 45$. The worker would cost more than their contribution, so the firm stops hiring."},{"text":"The third worker's $\\pounds 45$ MRP is below the $\\pounds 35$ wage.","correct":false,"explanation":"Both values and their ordering have been swapped. The third worker has $\\pounds 35$ MRP against a $\\pounds 45$ wage, making employment unprofitable."},{"text":"The third worker's $\\pounds 55$ MRP is above the $\\pounds 45$ wage.","correct":false,"explanation":"This overstates the third worker’s stated MRP. Their actual $\\pounds 35$ contribution is below the $\\pounds 45$ wage, so hiring them would reduce profit."}]},{"id":"41cd498a-6d86-4395-842e-98ea2cdf430c","cardType":"cloze","points":null,"front":"A change in the wage causes a [ ].","back":"A change in the wage causes a movement along the labour demand curve.","mcqOptions":[{"text":"movement along the labour demand curve","correct":true,"explanation":"The wage is the price of labour shown on the curve’s vertical axis, so a wage change alters quantity demanded along the existing curve."},{"text":"shift of the labour demand curve","correct":false,"explanation":"A curve shifts when a non-wage determinant, such as productivity or product demand, changes. A wage change causes movement along the labour demand curve."},{"text":"movement along the labour supply curve","correct":false,"explanation":"Although a wage change can also affect labour supplied, this card concerns firms’ labour demand. It causes movement along the labour demand curve."},{"text":"rotation of the labour demand curve","correct":false,"explanation":"A wage change does not alter the demand relationship or its elasticity. It changes the quantity demanded, producing movement along the existing labour demand curve."}]},{"id":"d40a2fcd-1a85-4d24-9f91-d3e3eeaaaf6e","cardType":"basic","points":2,"front":"How does increased labour productivity affect the labour demand curve?","back":"It shifts right because each worker's MRP rises.","mcqOptions":[{"text":"It shifts right because each worker's MRP rises.","correct":true,"explanation":"Greater productivity raises each worker’s extra output and therefore their MRP. Firms consequently demand more labour at every wage, shifting demand right."},{"text":"It shifts left because each worker's MRP rises.","correct":false,"explanation":"The direction is reversed. A higher MRP makes workers profitable at more wage-employment combinations, increasing labour demand and shifting the curve right."},{"text":"It shifts right because each worker's MRP falls.","correct":false,"explanation":"A fall in MRP would reduce labour demand rather than increase it. Productivity growth raises MRP, which is why the labour demand curve shifts right."},{"text":"It remains unchanged because each worker's wage rises.","correct":false,"explanation":"Productivity directly affects workers’ marginal revenue product even if wages do not change. Higher productivity raises MRP and shifts labour demand to the right."}]},{"id":"cb95aa82-26c4-4344-bc55-5bb1558bd1da","cardType":"basic","points":2,"front":"What may happen to labour demand when capital becomes cheaper?","back":"Labour demand shifts left as firms substitute machines for workers.","mcqOptions":[{"text":"Labour demand shifts left as firms substitute machines for workers.","correct":true,"explanation":"When capital becomes cheaper relative to labour, firms may replace workers with machinery. This substitution reduces labour demanded at each wage, shifting demand left."},{"text":"Labour demand shifts right as firms substitute machines for workers.","correct":false,"explanation":"Replacing workers with machines reduces firms’ need for labour, so the direction is reversed. Labour demand shifts left when capital substitutes for workers."},{"text":"Labour demand shifts left as firms substitute workers for machines.","correct":false,"explanation":"Substituting workers for machines would increase, not decrease, labour demand. Cheaper capital instead encourages firms to substitute machines for workers, shifting labour demand left."},{"text":"Labour demand stays fixed as firms substitute machines for workers.","correct":false,"explanation":"Substitution changes the quantity of labour firms want at every wage, so the curve cannot remain fixed. Replacing workers with machines shifts labour demand left."}]},{"id":"49988853-d869-43b1-a5bd-e4dbce6fa6df","cardType":"cloze","points":null,"front":"Wage elasticity of demand for labour is $\\text{[...]}$.","back":"Wage elasticity of demand for labour is $\\boxed{\\dfrac{\\%\\Delta Q_L}{\\%\\Delta W}}$.","mcqOptions":[{"text":"$$\\dfrac{\\%\\Delta Q_L}{\\%\\Delta W}$","correct":true,"explanation":"Wage elasticity of labour demand measures the percentage change in quantity of labour demanded divided by the percentage change in the wage rate."},{"text":"$$\\dfrac{\\%\\Delta W}{\\%\\Delta Q_L}$","correct":false,"explanation":"This inverts the elasticity formula, measuring wage responsiveness to employment instead. Wage elasticity divides the percentage change in labour demanded by the percentage change in wages."},{"text":"$$\\dfrac{\\Delta Q_L}{\\Delta W}$","correct":false,"explanation":"Using absolute changes makes the result depend on the chosen units. Elasticity requires percentage changes in labour demanded and wages so it remains unit-free."},{"text":"$$\\dfrac{\\%\\Delta Q_L}{\\%\\Delta P}$","correct":false,"explanation":"Using the product price confuses wage elasticity with responsiveness to another determinant. The denominator must be the percentage change in the wage rate."}]},{"id":"01c63861-a90a-4ab0-9e0c-2239fb2007c7","cardType":"basic","points":2,"front":"What does elastic demand for labour imply about a wage rise?","back":"A wage rise causes a large, more than proportionate fall in employment.","mcqOptions":[{"text":"A wage rise causes a large, more than proportionate fall in employment.","correct":true,"explanation":"Elastic labour demand means the percentage change in employment is greater than the percentage change in wages, so a wage rise produces a more than proportionate fall in employment."},{"text":"A wage rise causes a small, less than proportionate fall in employment.","correct":false,"explanation":"This describes inelastic labour demand, where employment changes by a smaller percentage than wages. Elastic demand instead causes a large, more than proportionate fall in employment after a wage rise."},{"text":"A wage rise causes a proportionate fall in employment.","correct":false,"explanation":"A proportionate employment response indicates unit elasticity, with elasticity equal to -1. Elastic labour demand produces a larger percentage fall in employment than the percentage rise in wages."},{"text":"A wage rise causes a large, more than proportionate rise in employment.","correct":false,"explanation":"This reverses the relationship between wages and labour demanded. Higher wages increase firms’ costs and, with elastic demand, cause a large, more than proportionate fall in employment."}]},{"id":"8da54056-b289-4f84-8d73-08ea8a2fdec6","cardType":"basic","points":2,"front":"Why does a large labour share of total costs make labour demand more elastic?","back":"A wage rise causes a larger increase in total costs.","mcqOptions":[{"text":"A wage rise causes a larger increase in total costs.","correct":true,"explanation":"When labour accounts for a large share of total costs, a wage rise has a substantial effect on firms’ overall costs, increasing their incentive to reduce labour demand."},{"text":"A wage rise causes a smaller increase in total costs.","correct":false,"explanation":"A large labour cost share means wages significantly affect total costs, so the increase is larger, not smaller. This makes firms more responsive by reducing labour demand."},{"text":"A wage rise causes a larger increase in total revenue.","correct":false,"explanation":"The relevant effect is on total costs, because labour is an input. A large labour share means a wage rise causes a larger increase in total costs and more elastic labour demand."},{"text":"A wage rise causes a smaller decrease in total costs.","correct":false,"explanation":"Firms do not experience a decrease in total costs when wages rise while employment is unchanged. A large labour share causes a larger increase in total costs."}]},{"id":"83041a1e-6342-4f31-b3ce-a4906192e300","cardType":"basic","points":2,"front":"Why does easy substitution of capital for labour make labour demand more elastic?","back":"Firms can replace workers more readily when wages rise.","mcqOptions":[{"text":"Firms can replace workers more readily when wages rise.","correct":true,"explanation":"If capital is an easy substitute for labour, firms can switch towards capital when wages rise, reducing the quantity of labour demanded substantially."},{"text":"Firms can replace workers less readily when wages rise.","correct":false,"explanation":"Difficult substitution makes labour demand less responsive to wages. Easy substitution allows firms to replace workers more readily when wages rise, making labour demand more elastic."},{"text":"Firms can employ more workers more readily when wages rise.","correct":false,"explanation":"A wage rise normally increases the cost of employing labour, encouraging substitution towards capital rather than greater employment. Easy substitution therefore makes labour demand more elastic."},{"text":"Firms can reduce capital use more readily when wages rise.","correct":false,"explanation":"When wages rise, firms have an incentive to substitute capital for labour, not reduce capital use. The key reason for elasticity is that workers can be replaced more readily."}]},{"id":"b32d09fe-bfa0-43b5-a0a3-65c620c1f4e4","cardType":"basic","points":2,"front":"Employment falls by $15\\%$ after wages rise by $10\\%$. Calculate and classify wage elasticity of labour demand.","back":"$-1.5$, so labour demand is elastic.","mcqOptions":[{"text":"$-1.5$, so labour demand is elastic.","correct":true,"explanation":"Wage elasticity of labour demand is the percentage change in employment divided by the percentage change in wages: $-15\\% \\div 10\\% = -1.5$. Its absolute value exceeds one, so demand is elastic."},{"text":"$-0.67$, so labour demand is inelastic.","correct":false,"explanation":"This results from reversing the division, calculating $10\\% \\div -15\\%$. The correct elasticity is $-15\\% \\div 10\\% = -1.5$, whose absolute value shows elastic demand."},{"text":"$1.5$, so labour demand is elastic.","correct":false,"explanation":"The magnitude is calculated correctly, but the sign is negative because employment falls when wages rise. The correct result is $-1.5$, and its absolute value indicates elastic demand."},{"text":"$-1.5$, so labour demand is inelastic.","correct":false,"explanation":"Although the calculation and negative sign are correct, an elasticity with an absolute value greater than one is elastic. Therefore $-1.5$ indicates elastic, not inelastic, labour demand."}]},{"id":"784fb08a-ae2a-4a53-9a23-9bd6930986a0","cardType":"cloze","points":null,"front":"A [ ] labour demand curve represents more elastic demand.","back":"A flatter labour demand curve represents more elastic demand.","mcqOptions":[{"text":"flatter","correct":true,"explanation":"A flatter demand curve shows that a given change in wages produces a relatively large change in employment, which represents more elastic labour demand."},{"text":"steeper","correct":false,"explanation":"A steeper demand curve indicates that employment changes relatively little when wages change, representing inelastic rather than more elastic labour demand. A flatter curve shows greater responsiveness."},{"text":"vertical","correct":false,"explanation":"A vertical demand curve represents perfectly inelastic demand, where employment does not change as wages change. More elastic demand is represented by a flatter curve."},{"text":"horizontal","correct":false,"explanation":"A horizontal demand curve represents perfectly elastic demand, an extreme case rather than the general description required here. The expected term is flatter, indicating more elastic demand."}]}]}],"examCountdown":{"examDate":"2027-05-10","paperLabel":"Paper 1"},"heading":"1.6.1 The demand for labour, marginal productivity theory","title":"1.6.1 The demand for labour, marginal productivity theory Flashcards","topbar":{"backHref":"/a-level/economics/aqa/flashcards"},"topicSidebar":"$L39"}]}],"topicId":"5d80a55a-f580-5dc6-b47b-2c8cf8906714","walled":"$L3a"}],"$L3b","$L3c"]