(a) The reward to labour, which is wages, is determined by the interaction of supply and demand in the labour market.

• Supply of Labour: The supply of labour is influenced by factors such as the size of the working-age population, the participation rate (proportion of the population in the workforce), and the availability of training and education.
• Demand for Labour: The demand for labour is influenced by factors such as the level of economic activity (GDP), the productivity of workers, the cost of other factors of production (e.g., capital), and government regulations (e.g., minimum wage laws).
• Trade Unions: The strength and bargaining power of trade unions can also influence wages. Strong unions can negotiate higher wages and better working conditions for their members.
• Skills and Qualifications: Workers with higher skills and qualifications are generally able to command higher wages due to their increased productivity.

When the demand for labour is high and the supply of labour is low, wages will be high. Conversely, when the demand for labour is low and the supply of labour is high, wages will be low.

Answer: The quantity of labour available directly impacts the potential output of a business. A larger labour force, assuming other factors remain constant, generally allows for a higher level of production. This is because more workers can be employed in the production process, increasing the number of tasks completed.

Explanation: The relationship is based on the principle of inputs and outputs. More labour is an input. More labour, with sufficient capital and other resources, will lead to a higher output. However, the relationship isn't always straightforward. Factors like worker skill, training, and the availability of capital (machinery, technology) also play a crucial role. If labour is unskilled or lacks the necessary training, the increase in quantity might be limited. Furthermore, if capital is insufficient to support a larger workforce, productivity per worker might decline, offsetting the benefits of increased labour.

Example: Consider a factory that increases its workforce. If the factory has enough machinery and the workers are properly trained, output will likely increase. However, if the factory doesn't have enough machines for the extra workers, or if the workers are not skilled, the output increase might be minimal or even negative due to overcrowding and inefficiency.

(a) The reward to a factor of production is determined by the interaction of supply and demand in the factor market.

• Rent: The reward to land is determined by the demand for land by businesses to produce goods and services. Higher demand leads to higher rents. Factors influencing demand include consumer income, tastes, and the availability of alternative resources.
• Wages: The reward to labour is determined by the supply and demand for labour. Higher demand for skilled labour and a limited supply will lead to higher wages. Factors influencing demand include the level of economic activity and the productivity of workers.
• Interest: The reward to capital is determined by the supply and demand for loanable funds. Higher demand for investment by businesses will lead to higher interest rates. Factors influencing demand include the profitability of investment opportunities and the level of economic confidence.
• Profit: The reward to entrepreneurship is determined by the demand for the goods and services produced by businesses. Higher demand and lower costs will lead to higher profits. Factors influencing demand include consumer income, tastes, and the price of competing goods.

The price of each factor is essentially the cost to the user of that factor. If demand for a factor is high and supply is low, the price (reward) will be high. If demand is low and supply is high, the price will be low.