2281 · 3.4
Trade unions flashcards
Revision flashcards for Cambridge 2281 Trade unions (syllabus 3.4). Flip, recall, then mark a real past-paper question.
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Why is labour demand derived?
Firms hire workers to produce output — demand for labour depends on demand for the product and worker productivity (MRP).
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MRP formula?
Marginal revenue product = marginal product × marginal revenue — firm hires until MRP = wage.
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Monopsony labour market?
Single buyer of labour — hires where MRP = MC of labour, paying wage below MRP; employment below competitive level.
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Minimum wage above equilibrium?
Wage floor above market clearing rate → quantity of labour supplied exceeds demand → **unemployment** (surplus labour).
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Trade union effect on wages?
Collective bargaining can raise wages — if above equilibrium, employment may fall; in monopsony, union may raise wages and employment.
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Wage differential causes?
Skills, qualifications, experience, non-pecuniary benefits, discrimination, geographic immobility, union power.
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What is the profit-maximising condition for hiring labour for any firm?
A firm will hire labour up to the point where the Marginal Revenue Product of labour (MRP) equals the Marginal Cost of Labour (MCL).
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Why is the MCL curve above the AC (supply) curve for a monopsonist?
To hire one more worker, the monopsonist must increase the wage for all existing workers, not just the new recruit. The MCL is the wage of the new worker plus the cost of this raise for all other workers.
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Under what specific market condition can a trade union increase both wages and employment?
When bargaining with a monopsonist employer. A negotiated wage set above the low monopsony wage but below the competitive equilibrium level can increase both pay and jobs.
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Define 'derived demand' in the context of the labour market.
The demand for labour is derived from the demand for the final goods and services that the labour produces. If demand for the product falls, the demand for the labour to make it will also fall.
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What is the theoretical effect of a national minimum wage in a perfectly competitive labour market if it is set above the equilibrium wage?
It creates real-wage unemployment. The quantity of labour demanded by firms contracts, while the quantity of labour supplied by workers extends, resulting in an excess supply of labour.