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Labour Market- Part 4 (Wage Determination in a Perfectly Competitive) Video Lecture | Crash Course for Human Resource Management - UGC NET
FAQs on Labour Market- Part 4 (Wage Determination in a Perfectly Competitive) Video Lecture - Crash Course for Human Resource Management - UGC NET
| 1. What is the concept of wage determination in a perfectly competitive labor market? |  |
Ans. In a perfectly competitive labor market, wage determination is based on the interaction of supply and demand for labor. Employers are wage takers, meaning they accept the market wage as given. The equilibrium wage is established where the quantity of labor supplied equals the quantity of labor demanded. This wage reflects the marginal productivity of labor, which is the additional output generated by employing one more unit of labor.
| 2. How does the marginal productivity theory explain wage determination? | |
Ans. The marginal productivity theory posits that wages are determined by the productivity of the last worker hired. In a perfectly competitive market, firms will pay workers a wage equal to the value of their marginal product (VMP), which is calculated by multiplying the marginal product of labor (MPL) by the price of the output. If the VMP is greater than the wage, firms will continue hiring until the two figures equalize, leading to an equilibrium wage.
| 3. What factors can shift the labor supply curve in a perfectly competitive market? | |
Ans. The labor supply curve can shift due to several factors, including changes in population demographics, education and skill levels, and alternative employment opportunities. For instance, an increase in the working-age population can shift the supply curve to the right, leading to lower wages, while a rise in education levels can increase the skill and productivity of workers, potentially shifting the supply curve leftward as higher wages become necessary to attract qualified candidates.
| 4. How do changes in demand for goods affect wages in a perfectly competitive labor market? | |
Ans. Changes in demand for goods directly impact the demand for labor and, consequently, wages. When the demand for a product increases, firms require more labor to produce additional output, leading to an increase in the demand for labor. This shift can raise wages as firms compete for workers. Conversely, if demand for a product decreases, the demand for labor will also decline, which may result in lower wages.
| 5. What role does competition among firms play in wage determination in a perfectly competitive labor market? | |
Ans. Competition among firms plays a crucial role in wage determination in a perfectly competitive labor market. Since firms are unable to influence market wages, they must compete for workers by offering wages that reflect the market equilibrium. If one firm offers a wage below the market rate, it risks losing workers to competitors. This competitive pressure ensures that wages remain aligned with the marginal productivity of labor, promoting efficiency and optimal resource allocation in the labor market.
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Sep 08, 2025
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