Demand - Utility and Marginality

Demand - Utility and Marginality

Discuss two factors that would increase demand for labor. (Hint: Recall that the demand for factors of production or resources is called a derived demand)

To produce output it is necessary for an economic enterprise to acquire requisite skilled and unskilled labor. Thus labor, is one of the most essential factors of production, and its increasing demand is also inferred as a derived demand. The phenomenon dictates that as firms plan to increase their product's production, they would have to employ additional labor resources. In essence, derived demand in labor is required to raise output production, which is accentuated by rising product demand.

There are many factors that would increase demand for labor. Some of these factors are:

Technology - The stated factor of production can cause shifts on both sides on the demand of labor (Rittenberg & Tregarthen, 2009);

Economic growth in the country bring forth derived demand, conversely decrease in economic growth can also lead to decline in labor resource demands (Bouman, 2011);

If higher percentage of the labor force acquire higher skills, the phenomenon can also observe derived demand in labor resources (Filion, 2009);

Legal implications such as changes in minimum wage law can also lead to derived demand in labor resources (Filion, 2009);

Derived demand in labor can also decrease because of labor unions (Boaz, 2009).

If the market price of the good or service that a firm produces increases, what happens to the demand of labor? Explain.

According to the behavior of data of wages in recent years, it perfectly fulfills the law of supply and demand (Boaz, 2009). This phenomenon exists to the extent that the supply of labor increases the real value of wages decreases. Thus, economic enterprise witnesses an inverse relationship between wage rate of the firm and the demand for labor. This economic law states that the greater the supply, the lesser the price of what is offered as a product. Furthermore, the lower the supply, the price of the offering is higher, which is fulfilled quite well in the case of wages, especially when the labor supply is high.

Perhaps no other product or service so faithfully fulfills this law, as labor does. We have seen oil, cement and many other products, challenging the law of supply and demand; but when it comes to the wages of workers. There will not be created any factor that distorts the labor market, and everything operates according to mathematical models designed by theorists

As such an inverse relationship is existent between the market price of output and the demand of labor. This means that as wages reduce, it gives economic incentive to firms to use less of capital equipment and hire more workers to increase their output production. Conversely, if wages increase, it is suitable to maintain the same amount of workforce and the corresponding wages. These decisions are made on the basis of the essential objective of the firm, i.e. to maximize profitability. Thus firms would look for methods to reduce their costs ...