J Flashcards
(281 cards)
1
Q
What does elasticity of labour demand measure?
A
It measures the responsiveness of labour demanded given a change in the wage rate.
2
Q
What happens to labour demand when wages rise?
A
Firms can sack workers and bring in capital instead.
3
Q
What is the relationship between substitutability of capital and wage elasticity?
A
The more substitutable capital is for labour, the more wage elastic the labour demand curve is.
4
Q
How does the elasticity of demand for the final product affect labour demand?
A
If the final product is inelastic and wages go up, firms won’t significantly cut their workforce because they can pass on high costs to consumers via higher prices.
5
Q
What is the effect of labour costs as a percentage of total costs on wage elasticity?
A
The greater the percentage that labour costs are from total costs, the more wage elastic demand will be.
6
Q
What is the time period’s role in determining labour demand elasticity?
A
The time period affects how firms respond to changes in wage rates.
7
Q
Fill in the blank: The more substitutable capital is for labour, the more ________ the labour demand curve is.
A
wage elastic
8
Q
True or False: If wages rise and the demand for the final product is elastic, firms will likely cut their workforce significantly.
A
False
9
Q
Fill in the blank: If the costs of labour constitute a greater percentage of total costs, the demand for labour will be more ________.
A
wage elastic
10
Q
What is a criticism of measuring productivity in certain industries?
A
Productivity may be very difficult to measure in certain industries, such as teaching, where output cannot be easily calculated.
This highlights the challenges of assessing individual contributions in team-based environments.
11
Q
Why is it difficult to measure individual productivity in team-based industries?
A
Labor mainly works in teams, making it hard to determine the productivity of each specific individual.
Team dynamics can obscure individual contributions to overall output.
12
Q
What assumption is made about self-employed workers in relation to MRP?
A
It is assumed that self-employed workers are paid in accordance with their MRP, but they often do not pay according to their revenue produced.
This discrepancy can lead to misunderstandings about income and productivity levels.
13
Q
What assumption does MRP theory make about the labor market?
A
It assumes that MRP is measured within a perfectly competitive labor market.
Trade unions bargaining for higher wages can distort this assumption.
14
Q
What causes a shift in the labor demand curve?
A
A shift can be caused by:
* Change in the final price of the product
* Change in demand for the final product
* Change in labor productivity
* Change in the price of capital
These factors influence the marginal revenue product of labor and, consequently, labor demand.
15
Q
Fill in the blank: If the price of a product increases, ceteris paribus, the _______ of that worker is going to increase.
A
MRP
16
Q
What is the nature of the demand for labour in a market/industry?
A
Downward sloping as it represents the total MRP of all labour in the market.
17
Q
What type of relationship exists between wage rate and the quantity of workers?
A
Inverse relationship.
18
Q
What law explains the short-run behaviour of labour demand?
A
Law of diminishing returns.
19
Q
What happens to the demand for labour in the long run when all factors of production are variable?
A
Capital can be employed by firms as a substitute for labour.
20
Q
What is the effect of high wage rates on the demand for labour?
A
Firms may find it more cost effective to employ cheaper capital relative to labour.
21
Q
What occurs when the wage rate increases from w1 to w2?
A
There is a contraction of labour demand.
22
Q
Why do workers need to have a very high MRP at higher wages?
A
To justify their employment, which excludes many workers.
23
Q
Fill in the blank: The demand for labour is represented by _______.
A
D=MRP.
24
Q
What does the term ‘contraction’ refer to in the context of labour demand?
A
A decrease in the quantity of labour demanded at higher wage rates.
25
What causes MRPL to continue to increase up until a specific point?
Specialisation gains and excess land and capital available for workers
## Footnote
These factors increase productivity as workers are employed.
26
What happens to MRPL after a specific point in labour employed?
MRPL decreases due to constraints of fixed factors of production, leading to reduced individual productivity
## Footnote
This reduction in productivity lowers the marginal revenue product.
27
In a perfectly competitive labour market, what is the role of firms regarding wages?
Firms are wage takers and have no control over the wage they pay employees
## Footnote
This means they must accept the market wage.
28
What is the hiring rule for firms in relation to MRP and wage rate?
Firms will hire workers until MRP equals the wage rate
## Footnote
This is to ensure that the cost of hiring does not exceed the revenue generated by additional labor.
29
Why won't firms hire below MRP = wage rate?
Every additional labour employed provides extra revenue until costs equal extra revenue
## Footnote
Hiring below this point would mean the firm is not maximizing profit.
30
What is the condition for firms to make efficient employment decisions?
Firms should hire until MRP equals the wage rate (mc)
## Footnote
This condition helps ensure that the cost of labor aligns with the revenue it generates.
31
What is the equilibrium exchange rate in the context of labour markets?
Occurs when Labour equals demand
32
What does the demand curve for Labour indicate?
Shows how many workers will be hired at any given wage rate over a period of time
33
What type of demand is the demand for labour?
Derived demand
34
What is the relationship between the demand for goods and services and the demand for labour?
When demand for goods and services is high, demand for labour will also be high
35
Why do firms employ workers?
Because there is a need to produce goods and services
36
What does MRPL stand for?
Marginal Revenue Product of Labour
37
What does MRPL measure?
The extra revenue generated when an additional worker is hired
38
How is MRP calculated?
MRP = MPP x MR
39
What does MPP stand for?
Marginal Physical Product
40
What phenomenon do firms experience in the short run due to fixed factors of production?
Law of diminishing marginal returns
41
What does the MRP curve represent?
It is the demand for labour
42
Fill in the blank: MRP = _______ x MR.
MPP
43
True or False: The demand for labour is independent of the demand for goods and services.
False
44
In what type of market do firms operate as wage takers?
Perfectly competitive market
## Footnote
Firms in a perfectly competitive market have no control over the wage they pay their workers.
45
What does it mean for firms in a perfectly competitive market to have no control over wages?
They must accept the market wage
## Footnote
This leads to average cost equaling marginal cost.
46
In a perfectly competitive market, what is the relationship between average cost and marginal cost?
They are equal
## Footnote
This equality influences the supply of labor.
47
What type of labor supply do firms in a perfectly competitive market experience?
Perfectly elastic labor supply
## Footnote
This indicates that firms can hire any amount of labor at the market wage without affecting the wage rate.
48
What diagram represents the supply dynamics in a perfectly competitive labor market?
Perfect competition supply diagram
## Footnote
This diagram illustrates the relationship between wage and labor supply.
49
Fill in the blank: In a perfectly competitive market, the average cost will equal the _____ cost.
marginal
## Footnote
This is a key characteristic of firms in such markets.
50
What is the effect of higher wages on the supply of nurses?
Higher wages lead to an increase in supply as individuals return to the nursing profession.
51
What assumption is made regarding the labour supply diagram?
It is assumed that higher wages dominate the backward bending nature of individual supply.
52
What happens to trained nurses working in other professions when wages increase?
They see nursing as a great profession to return to and increase supply.
53
Who else may re-enter the nursing labour force due to higher wages?
Economically inactive nurses with qualifications may return to work.
54
What shape does the supply curve take when considering the effects of higher wages on nursing?
The supply curve is upward sloping.
55
Fill in the blank: Higher wages incentivize _______ to return to nursing.
[trained nurses and economically inactive nurses]
56
True or False: The supply of nurses decreases when wages increase.
False
57
What happens to real wages at the bottom to middle point on the backward bending curve?
Real wages are increasing exponentially, leading to an increase in the opportunity cost of leisure.
## Footnote
This increased opportunity cost means consumers will work more hours, but the rate of increase in hours worked is proportionally less as real wages rise.
58
What is the relationship between the income effect and substitution effect at the bottom to middle point on the backward bending curve?
The income effect is becoming negative but not enough to outweigh the substitution effect.
## Footnote
This indicates that even though consumers value leisure more due to higher wages, they still choose to work more hours.
59
What occurs at the middle to top point on the backward bending curve regarding opportunity cost?
The opportunity cost of leisure is now huge as wages are at their maximum.
## Footnote
This reflects a significant trade-off between leisure and income as wages rise.
60
How does the income effect change at the middle to top point on the backward bending curve?
The income effect is now negative as hours worked are reducing.
## Footnote
This reduction occurs because labor has reached their target income, leading to less incentive to work additional hours.
61
Fill in the blank: At the bottom to middle point on the backward bending curve, real wages are increasing _______.
[exponentially]
62
True or False: At the middle to top point on the backward bending curve, the opportunity cost of leisure is low.
False
## Footnote
The opportunity cost is actually huge at this point.
63
What assumption is made about labor at the middle to top point on the backward bending curve?
Labor has reached their target income.
## Footnote
This assumption explains why the income effect becomes negative as hours worked decline.
64
What key choice do individuals face regarding labour supply?
The choice between work and leisure
## Footnote
This choice reflects how individuals allocate their time and the associated opportunity costs.
65
What are the two main effects that determine the shape of the individual labour supply curve?
* Income effect
* Substitution effect
## Footnote
These effects influence how changes in wages affect individuals' decisions to work or enjoy leisure.
66
What is the income effect in the context of labour supply?
The rise in income as wages rise, incentivizing individuals to work more for greater incomes
## Footnote
However, it can also be negative if individuals choose to work less after reaching target income levels.
67
How does the substitution effect influence labour supply?
As wages rise, the opportunity cost of leisure time increases, providing an incentive to work
## Footnote
This effect motivates individuals to prioritize work over leisure due to higher potential earnings.
68
What happens to the opportunity cost of not working as wages continue to increase?
The opportunity cost of not working continues to rise
## Footnote
This increasing cost further incentivizes individuals to participate in the labour market.
69
What characterizes the bottom part of a backward bending labour supply curve?
Incomes are increasing but at a slow rate, leading individuals to work more
## Footnote
Here, both the substitution effect and income effect are positive, encouraging more work.
70
What is the relationship between income effect and substitution effect in the context of rising wages?
Both effects can encourage individuals to work more as wages increase
## Footnote
The substitution effect increases the incentive to work due to higher opportunity costs, while the income effect may require individuals to work to maintain a certain income level.
71
What is geographical mobility?
How easy it is for a worker to move between different regions and countries to seek new work
72
What are some reasons for geographical immobility?
* Family and social ties
* Older people are more reluctant to move
* Regional/local variations in house prices
* Difference in cost of living between regions
* Migration controls, e.g., caps on inward migration
73
How do average house prices in London compare to the UK average?
Average house prices in London are more than twice the UK average
74
What policies can improve occupational mobility?
* Better funding and more effective workforce training
* Expansion of apprenticeship/internship programmes
75
What policies can improve geographical mobility?
* Rise in house construction to keep property prices lower
* Active regional policy to create new jobs and businesses
76
What are some ways to stimulate stronger work incentives?
* Higher minimum wage or living wage
* Welfare reforms to reduce the risk of poverty trap
77
What is bi-lateral monopoly in the labor market?
It exists when a monopoly supplier of labor (trade union) faces a monopsony buyer of labor.
78
What is the monopsony wage at employment level E1?
W1
79
What wage may the union insist on using their bargaining power?
W2
80
What determines the wage that emerges in a bi-lateral monopoly?
Relative bargaining power
81
True or False: Unions can bid up the wage towards W2 without any loss of employment.
True
82
What is occupational mobility?
How easy it is for a worker to move from one occupation to another.
83
What occurs when there are barriers to the mobility of factors of production between different industries?
Occupational immobility
84
What is structural unemployment?
It occurs when some units of capital are specific to the industry designed for that market.
85
What are the consequences of structural unemployment?
It leads to a waste of scarce resources and represents market failure.
86
What is economic rent?
Income earned from a factor of production which is greater than the minimum necessary to bring the factor of production into operation
## Footnote
Economic rent reflects the surplus income that exceeds the basic requirement for the factor's employment.
87
What are transfer earnings?
The minimum payment necessary to prevent a factor of production from moving to a different use
## Footnote
Transfer earnings are crucial in understanding the opportunity cost of utilizing a resource.
88
Which area represents transfer earnings in a diagram?
Area OBCD
## Footnote
This area illustrates the minimum payment required to keep the factor of production in its current use.
89
Which area represents economic rent in a diagram?
Area ABC
## Footnote
This area signifies the income earned above the transfer earnings for the factor of production.
90
What is the total reward to the factor input labour represented by?
Area OACD
## Footnote
This total reward includes both economic rent and transfer earnings.
91
When the labour supply is inelastic, what happens to the reward to labour?
More of the reward to labour will be economic rent rather than transfer earnings
## Footnote
An inelastic supply indicates that changes in wage do not significantly affect the quantity of labour supplied.
92
What is the impact of skills level on elasticity of labour supply?
Specific skills and qualifications make labour supply inelastic.
## Footnote
Higher qualifications lead to a limited number of workers available for specific jobs.
93
How does the time period affect the elasticity of labour supply?
In the short run, the supply curve for labour tends to be relatively inelastic.
## Footnote
Workers may not be able to change jobs or acquire new skills quickly.
94
What happens to labour supply when workers are geographically and occupationally mobile?
Labour supply tends to be relatively elastic even in the short term.
## Footnote
Mobility allows workers to respond more readily to wage changes.
95
If a firm can employ each additional worker at the same wage rate, what is the relationship between average cost and marginal cost?
Average cost (AC) equals marginal cost (MC).
## Footnote
This indicates that hiring additional workers does not increase the average cost.
96
What occurs when a firm has to pay higher wages to attract more workers?
The average cost of labour rises and the marginal cost of labour (MCL) will be above average cost of labour (ACL).
## Footnote
This reflects the increasing cost associated with attracting additional workers.
97
Fill in the blank: In the short run, the supply curve for labour to a particular occupation tends to be relatively _______.
inelastic
98
True or False: When labour is mobile, the supply is always inelastic.
False
## Footnote
Mobility can make labour supply more elastic.
99
What is a key factor affecting labour supply to a job related to compensation?
Real wage rate on offer in the industry plus access to extra pay e.g., overtime payments/bonus
## Footnote
This refers to the monetary incentives that can attract workers to a particular job.
100
How do wages in substitute occupations influence labour supply?
Wages on offer in substitute occupations can affect the supply of labour
## Footnote
Higher wages in alternative jobs may draw potential workers away from their current roles.
101
What are barriers to entry in the context of labour supply?
Artificial limits to an industry's labour supply, such as minimum qualifications needed
## Footnote
These barriers can restrict the supply of workers and potentially increase wages.
102
How does occupational mobility influence labour supply?
Improvements in occupational mobility and the stock of human capital increase supply in a market
## Footnote
This is often due to expansions of apprenticeships and other types of work experience.
103
What are non-monetary characteristics of specific jobs that affect labour supply?
Job risk, need to work anti-social hours, job security, working conditions, career progression
## Footnote
These factors can significantly influence a worker's decision to accept or leave a job.
104
What effect does net migration of labour have on labour supply?
Net inward migration boosts the active/available labour supply in many occupations
## Footnote
This is particularly evident in sectors like the national health services.
105
What personal preferences can affect labour supply?
People's preference between work/leisure and desire for work flexibility
## Footnote
These preferences can lead individuals to prioritize leisure or flexible working conditions over traditional job roles.
106
What may cause an outward shift of labour supply?
Net inward migration of suitable qualified/experienced workers, fall in relative pay in substitute occupations, lower entry barriers
## Footnote
These factors can lead to an increase in the number of individuals willing to work in a job.
107
What may cause an inward shift of labour supply?
Brain drain effects, decline in non-monetary rewards, fall in relative pay compared to other jobs
## Footnote
These factors can lead to a decrease in the number of individuals willing to work in a job.
108
What is a perfectly competitive labour market?
A market where there are many workers and employers, with homogenous labour and perfect information.
109
What are the characteristics of a perfectly competitive labour market?
* Large number of potential workers and employers
* Labour is homogenous
* Perfect information
* Firms are wage takers
* No barriers to entry/exit
110
In a perfectly competitive labour market, why are firms considered wage takers?
Firms are wage takers because demand equals supply, and there is no incentive to offer higher wages.
111
True or False: In a perfectly competitive labour market, increasing wages can attract higher skilled labour.
False
112
What is the consequence of increasing wages to attract higher skilled labour in a perfectly competitive labour market?
It will cost firms more than the Marginal Revenue Product of labour.
113
Fill in the blank: In a perfectly competitive labour market, there are _______ to entry and exit.
no barriers
114
What happens in a perfectly competitive labor market regarding wage differences?
There would be no differences in wages between professions.
115
What are the two assumptions for a perfectly competitive labor market?
* All workers are homogenous
* Perfect mobility of labor
116
In a perfectly competitive labor market, what would happen if lawyers' wages increase?
Train drivers would leave their jobs to become lawyers.
117
What effect does the movement of train drivers to become lawyers have on the labor market?
* Decreases supply of train drivers
* Increases supply of lawyers
118
What is the result of decreased supply of train drivers and increased supply of lawyers?
Wage equilibrium is achieved, eliminating wage differentials.
119
True or False: In a perfectly competitive labor market, workers can easily transition between professions.
True
120
Fill in the blank: In a perfectly competitive labor market, slight differences in wages lead to _______.
[movement of workers to higher paying jobs]
121
What are the 5 market imperfections that lead to wage differentials?
1. Labour is not homogeneous
2. Non-monetary conditions
3. Labour is not perfectly mobile
4. Discrimination
5. Lack of perfect knowledge
122
What does it mean that labour is not homogeneous?
All workers are different, leading to different Marginal Revenue Products (MRPs) and wages.
123
Why might supply differ in various professions?
Not all workers are suitable for every job, leading to different supply levels across professions.
124
Is there always no discrimination in the labor market?
No, despite laws preventing discrimination, issues like age or sex discrimination still occur.
125
What are non-monetary conditions in the labor market?
Factors that affect job desirability aside from wages, impacting worker supply.
126
What is compensating wage differentials?
Higher wages in industries with poor working conditions to attract workers.
127
Why is labour not perfectly mobile?
Workers often have different skills, face geographical immobility, and may not want to relocate.
128
What does occupational immobility mean?
Not all workers possess the same skills or productivity for different jobs.
129
What are regional variances in wages?
Differences in wage levels across different geographical areas.
130
What might prevent workers from moving for better wages?
Personal preferences, family ties, or reluctance to relocate.
131
What is lack of perfect knowledge in the labor market?
Workers may not be aware of wage rates in different professions.
132
What is the primary function of trade unions?
Bargaining for higher wages
## Footnote
Trade unions represent workers' interests in negotiations with employers to secure better pay and working conditions.
133
Why do individual workers lack the power to increase wages on their own?
They need collective support from other workers and a trade union
## Footnote
Individual efforts are often insufficient without the backing of a larger group.
134
How does the size of trade union membership affect its bargaining power?
The bigger the membership, the more bargaining power the trade union has
## Footnote
A larger membership can lead to more effective negotiations with employers.
135
What is a monopsony?
A market condition with one dominant employer in a profession
## Footnote
Monopsonies have significant control over wage setting due to lack of competition.
136
How can a monopsony affect wages in a specific industry?
It can drive down wages, making them lower compared to other professions
## Footnote
This occurs because the monopsony has significant control over the labor supply.
137
Fill in the blank: Trade unions can increase their effectiveness in negotiations by increasing their _______.
membership
## Footnote
Greater membership translates to stronger collective bargaining power.
138
True or False: Trade unions can exist without collective membership.
False
## Footnote
Trade unions require collective membership to effectively represent workers' interests.
139
What is a monopsony?
A market structure where a single buyer (employer) has significant buying power over workers.
140
Which sectors are typically associated with monopsony power?
Teachers and nurses.
141
Who is generally the monopsony employer in the education and healthcare sectors?
The government.
142
What role do monopsonies play in the labor market?
They are wage makers due to their significant buying power over workers.
143
How do monopsonies maximize revenue from workers?
By hiring workers up to the point where Marginal Revenue Product (MRP) equals Marginal Cost (MC).
144
What does it imply when monopsonies need to increase wages to employ more workers?
The marginal cost of labor is greater than the average cost of labor.
145
What is the significance of the wage Wm in a monopsony?
Wm represents the monopsony wage read from the supply curve.
146
True or False: In a monopsony, the wage is equal to the average cost of labor.
False.
147
Fill in the blank: Monopsonies employ workers where _______ = MC of labor.
MRP
148
What does the supply curve indicate about wages in a monopsony?
It indicates that wages must increase for each additional worker hired.
149
What is the output level in a competitive labor market compared to a monopsony?
Qc compared to Qm
## Footnote
Qc is the quantity of labor in a competitive market, while Qm is the quantity in a monopsony.
150
What is the competitive wage in a labor market?
Wc
## Footnote
Wc represents the wage rate in a competitive labor market.
151
What effect does a monopsonist have on the employment of workers?
Reduces quantity of workers employed
## Footnote
A monopsonist employs fewer workers than would be in a competitive market.
152
What is the wage rate paid to workers in a monopsony market?
Wm
## Footnote
Wm is significantly lower than the marginal revenue product (MRP) of the workers.
153
How does the wage Wm compare to the marginal revenue product (MRP) of workers in a monopsony?
Wm is much lower than MRP
## Footnote
This indicates that workers are receiving an unfavorable compensation.
154
What is the relationship between wages and monopsony power?
The lower the wages in comparison to MRP, the greater the monopsony power
## Footnote
This suggests that monopsonists can exert more control over wage rates.
155
What happens to a monopsony at the wage of trade unions?
The monopsony becomes a wage taker up until a limit
## Footnote
This indicates that the monopsony must accept the wage set by the trade union.
156
At the wage rate of trade unions, what curves are affected?
The average and marginal cost of labour curve as well as the supply
## Footnote
This reflects the change in the monopsony's cost structure due to union wage rates.
157
What is the point up to which monopsonies will hire workers at the union wage?
QTU
## Footnote
This point represents the quantity of labor that monopsonies are willing to employ at the union wage.
158
What does STU=AL S=ACL signify in the context of monopsony and trade unions?
It signifies a relationship between supply, average labor, and average cost of labor
## Footnote
This indicates the equilibrium reached in the labor market under these conditions.
159
What does DEMRP stand for in the context of monopsony?
Demand for marginal revenue product
## Footnote
This refers to the additional revenue generated from employing one more unit of labor.
160
What does Qc represent in the context of employment?
Qc represents a specific quantity related to employment levels
## Footnote
This could refer to an equilibrium quantity where labor demand meets supply.
161
True or False: Improvements in efficiency are not relevant to monopsony with trade unions.
False
## Footnote
Improvements in efficiency can impact the hiring decisions and wage dynamics in monopsonistic markets.
162
Fill in the blank: Employment is means _______.
means my
## Footnote
This phrase may indicate a personal or subjective view on employment.
163
What effect do trade unions have on competitive labour market outcomes?
Trade unions distort competitive labour market outcomes where a significant percentage of labour are worse off
## Footnote
This can lead to raising costs for firms, worsening conditions for workers in the long run.
164
How can trade unions impact a monopsony labour market?
Trade unions may improve wages, getting them closer to competitive outcomes, and can increase employment
## Footnote
This is particularly relevant in monopsony situations where there is only one buyer for labour.
165
What does the strength of trade union power depend on?
The strength of trade union power depends on union density
## Footnote
Union density is the proportion of the workforce that are part of a trade union.
166
What is union density?
Union density is the proportion of the workforce that are part of a trade union
## Footnote
A greater percentage indicates greater power for the union.
167
What is union markup?
Union markup is the difference in wages between workers in a trade union and those in a similar profession who aren't
## Footnote
A bigger union markup indicates a larger effect of the union on wages.
168
True or False: Trade unions always have a negative impact on workers' conditions in competitive labour markets.
False
## Footnote
While they can distort outcomes, their impact can vary significantly depending on market conditions.
169
Fill in the blank: The bigger the union markup, the _______.
bigger the effect
## Footnote
Union markup reflects the influence of trade unions on wage levels.
170
What is a 'closed shop trade union'?
A closed shop trade union is one where all workers in a market are part of just one trade union.
## Footnote
In the real world, closed shop trade unions are illegal.
171
What happens to other trade unions in a closed shop trade union scenario?
Other trade unions do not exist, leading to a monopoly supplier of labour.
## Footnote
The closed shop trade union controls the labour supply at given wage rates.
172
What does Wtu represent in the context of trade unions?
Wtu represents the number of workers behind the trade unions who will be happy with a specific wage.
## Footnote
All workers below the supply of WTU are willing to work at those specific wages.
173
What must an employer do to employ more workers in a closed shop trade union scenario?
An employer must offer higher wages, as the wages of the trade union are not attractive enough for workers above the dot on the supply curve.
## Footnote
This indicates that the existing wages are not sufficient to attract additional labor.
174
What is the effect of higher wages in a closed shop trade union on the supply curve?
The new supply curve is denoted as STU, indicating that wages have increased compared to competitive outcomes.
## Footnote
This shift leads to a contraction in the demand for workers.
175
How does the demand for workers change in a closed shop trade union scenario?
The demand for workers contracts to QTU, which is much less than Q.
## Footnote
This results in a greater creation of unemployment, as illustrated by the shaded area.
176
True or False: A closed shop trade union allows multiple trade unions to exist within the same market.
False
## Footnote
A closed shop trade union eliminates the existence of other trade unions.
177
Fill in the blank: In a closed shop trade union, the trade union becomes a _______ supplier of labour.
monopoly
## Footnote
This monopoly controls the labour supply at given wage rates.
178
What is a disadvantage of income inequality for the government?
The government needs to spend more on welfare payments for lower income earners, leading to more strain on government finances.
## Footnote
This situation arises because income inequality often forces the government to allocate more resources to social welfare programs.
179
How does high income inequality affect long-term economic growth?
High rates of income inequality can hamper growth in the long run.
## Footnote
This occurs because the poor have a higher marginal propensity to consume, meaning their spending is crucial for economic activity.
180
Why does restraining income growth for the poor affect overall spending in the economy?
Restraining income growth for the poor restrains spending in the economy.
## Footnote
Since the poor tend to spend a larger portion of their income, their reduced income limits overall economic consumption.
181
Who has the highest marginal propensity to save?
The rich have the highest marginal propensity to save.
## Footnote
This means that they are more likely to save additional income rather than spend it, which can lead to reduced economic growth.
182
What does the phrase 'Encourages work not welfare' imply?
It suggests promoting employment over reliance on welfare benefits.
## Footnote
This phrase highlights the importance of incentivizing employment to reduce dependency on government support.
183
What happens in a perfectly competitive labor market regarding welfare?
There is no incentive to leave welfare if living on it provides sufficient benefits.
## Footnote
In a perfectly competitive market, individuals on welfare may find it unappealing to seek employment due to comparable earnings.
184
Why might individuals not be motivated to leave welfare?
Because they will only earn what everyone else is earning in the economy.
## Footnote
This situation arises when benefits from welfare are comparable to potential earnings from employment.
185
What can individuals do to increase their marginal revenue product (MRP)?
They can improve their qualifications and participate in training programs.
## Footnote
These actions can enhance an individual's skills and employability.
186
What is the outcome of leaving welfare to improve MRP?
Individuals will attain higher wages and government spending on transfer payments will decrease.
## Footnote
This outcome reflects a shift towards a more self-sufficient economy with reduced reliance on welfare.
187
What is the reaction of an economic agent being paid a lower wage when there is symmetric information about higher wages?
To gain skills and qualifications needed to increase MRP
## Footnote
MRP stands for Marginal Revenue Product, which determines the value of a worker's contribution to production.
188
How can higher productivity of the labor force impact business costs?
It can bring down costs of business, making the economy more internationally competitive
## Footnote
Increased productivity often leads to more efficient production processes.
189
What is the long-term economic benefit of higher productivity?
Greater long-term growth as everyone benefits from greater GDP per capita
## Footnote
GDP per capita is a measure of a country's economic output that accounts for its number of people.
190
What is the 'trickle down effect'?
Higher earners benefit lower earners by spending money, creating a multiplier effect
## Footnote
This concept suggests that benefits provided to the wealthy will eventually benefit the broader population.
191
What happens to demand for goods when higher wages are spent?
Demand for goods picks up, leading to higher wages in those industries
## Footnote
Increased demand can stimulate economic activity and job creation.
192
What is 'derived demand of labor'?
Job creation driven by the demand for goods and services
## Footnote
This concept relates to how demand for labor is contingent on the demand for the products or services that labor helps to produce.
193
How do higher incomes affect taxation?
Higher earners pay larger amounts of taxes due to being pushed into larger taxation brackets
## Footnote
Tax brackets determine how much tax individuals pay based on their income level.
194
What is the effect of higher income taxes on government revenue?
It allows the government to redistribute income, increasing incomes for lower earners
## Footnote
Redistribution can occur through social programs and public services funded by tax revenues.
195
What motivates entrepreneurs regarding their MRP?
The potential to earn an extremely high wage by successfully boosting their MRP
## Footnote
Entrepreneurs take risks to innovate, which can lead to significant financial rewards.
196
How does entrepreneurship contribute to economic growth?
It encourages long-term growth through greater innovation and job creation
## Footnote
Innovations can lead to new industries and improved productivity.
197
What impact can innovation have on costs and prices?
Innovation may drive down costs and prices through new technologies
## Footnote
Technological advancements often lead to more efficient production methods.
198
What does the phrase 'Encourages work not welfare' imply?
It suggests promoting employment over reliance on welfare benefits.
## Footnote
This phrase highlights the importance of incentivizing employment to reduce dependency on government support.
199
What happens in a perfectly competitive labor market regarding welfare?
There is no incentive to leave welfare if living on it provides sufficient benefits.
## Footnote
In a perfectly competitive market, individuals on welfare may find it unappealing to seek employment due to comparable earnings.
200
Why might individuals not be motivated to leave welfare?
Because they will only earn what everyone else is earning in the economy.
## Footnote
This situation arises when benefits from welfare are comparable to potential earnings from employment.
201
What can individuals do to increase their marginal revenue product (MRP)?
They can improve their qualifications and participate in training programs.
## Footnote
These actions can enhance an individual's skills and employability.
202
What is the outcome of leaving welfare to improve MRP?
Individuals will attain higher wages and government spending on transfer payments will decrease.
## Footnote
This outcome reflects a shift towards a more self-sufficient economy with reduced reliance on welfare.
203
What are wage differentials?
Variations in earnings between different groups or individuals
204
How do labor force participation rates differ between males and females?
Women tend to be in and out of the labor force much more than men
205
What impact does childbearing have on women's labor force participation?
Maternity leave can reduce women's skill development and thus their MRP
206
What is MRP?
Marginal Revenue Product
207
Why might men's earnings be higher than women's?
Men are much more attached to the workforce
208
What role does education play in wage differentials?
Differences in education/qualifications generally occur in developing countries
209
What opportunities do women have regarding education?
Women often have less access to education and qualifications compared to men
210
How does lack of qualifications affect women's MRP?
Women don't have the same MRP, allowing men to bargain for higher wages
211
In what types of occupations do women tend to work?
Lower paid occupations
212
What is a common characteristic of women's work in the labor force?
Part-time work
213
What sector do many women end up working in?
Public sector
214
Fill in the blank: Women tend to work in _____ paid occupations.
lower
215
True or False: Women have the same MRP as men.
False
216
What is a disadvantage of income inequality for the government?
The government needs to spend more on welfare payments for lower income earners, leading to more strain on government finances.
## Footnote
This situation arises because income inequality often forces the government to allocate more resources to social welfare programs.
217
How does high income inequality affect long-term economic growth?
High rates of income inequality can hamper growth in the long run.
## Footnote
This occurs because the poor have a higher marginal propensity to consume, meaning their spending is crucial for economic activity.
218
Why does restraining income growth for the poor affect overall spending in the economy?
Restraining income growth for the poor restrains spending in the economy.
## Footnote
Since the poor tend to spend a larger portion of their income, their reduced income limits overall economic consumption.
219
Who has the highest marginal propensity to save?
The rich have the highest marginal propensity to save.
## Footnote
This means that they are more likely to save additional income rather than spend it, which can lead to reduced economic growth.
220
What is income?
A flow concept measured over a given period of time
## Footnote
Income reflects the earnings received regularly, such as wages or salaries.
221
What is wealth?
A stock concept
## Footnote
Wealth represents the total assets owned by an individual at a specific point in time.
222
How are income and wealth related?
Both are mutually reinforcing
## Footnote
High incomes can be used to purchase assets that generate more income.
223
What is the effect of age on income potential?
Older individuals generally have a greater earning potential due to a higher MRP
## Footnote
MRP stands for Marginal Revenue Product, which indicates the additional revenue generated from one more unit of labor.
224
How does education influence income?
The more qualifications someone has, the greater their earning potential
## Footnote
Higher education levels often correlate with higher-paying jobs.
225
What is the impact of financial asset ownership on income?
Those who can purchase financial assets like pensions and shares will be better off
## Footnote
Ownership of financial assets can provide additional income streams.
226
How does employer strength affect employee benefits?
Stronger employers are more likely to offer good pension schemes
## Footnote
This can influence the long-term financial security of employees.
227
What is the effect of property ownership on income distribution?
Those who own property benefit as prices increase, creating a divide
## Footnote
Rising property values can exacerbate wealth inequality.
228
What are wage differentials?
Differences in wages earned by individuals or groups
## Footnote
Wage differentials can be influenced by factors such as education, experience, and industry.
229
What does the Lorenz curve represent in measuring income inequality?
It shows the distribution of income within a country, with the closer it is to the line of perfect equality indicating lower inequality.
230
In South Africa, what percentage of total income is earned by the bottom 20% of the population?
Around 5%.
231
What percentage of total income is earned by the top 10% of the population in South Africa?
Around 50%.
232
How does income inequality in Norway compare to South Africa?
Norway has some income inequality but much less than South Africa.
233
In the context of the Lorenz curve, what does Section A represent?
The total distance between the Lorenz curve and the line of perfect equality.
234
In the context of the Lorenz curve, what does Section B represent?
The total area beneath the Lorenz curve.
235
What does A + B represent in the context of the Lorenz curve?
The total area beneath the line of perfect equality.
236
What does a Gini coefficient of 0 indicate?
Perfect equality.
237
What does a Gini coefficient of 1 suggest?
Perfect inequality.
238
Fill in the blank: The closer the Lorenz curve is to the line of perfect equality, the _______ the rate of inequality within a country.
[lower]
239
What does being born into poverty and raised by a single parent indicate?
It indicates a challenging socioeconomic background.
240
What is a tax cure for the well-off?
It refers to the decreasing tax brackets for higher incomes.
241
How have tax brackets for higher incomes changed over time?
They have been continually coming down, much lower than before.
242
What effect does the decreasing tax bracket have on the incomes of the wealthy?
It provides an automatic boost to their incomes.
243
What type of agriculture dominates economies in developing countries?
Subsistence agriculture.
244
What are parents in developing countries likely to prioritize over education?
Raising children to work on farms.
245
Fill in the blank: Subsistence agriculture dominates economies in _______ countries.
[developing]
246
True or False: Higher incomes now pay a higher tax rate than in the past.
False.
247
What is a consequence of subsistence agriculture on children's education?
It leads to a lack of realization of the value of education and productivity gains.
248
What is absolute poverty?
Incomes below a threshold of $2/day to access the most basic, life-sustaining goods and services
## Footnote
Absolute poverty indicates a severe lack of resources necessary for basic survival.
249
What is relative poverty?
Incomes below a given average in society
## Footnote
Relative poverty measures economic status in relation to the average income of a particular society.
250
Define equity in the context of income distribution.
The fair distribution of income
## Footnote
Equity focuses on fairness in the distribution of income, rather than equality.
251
Define equality in terms of income distribution.
The equal distribution of income
## Footnote
Equality implies that everyone receives the same amount of income, regardless of circumstances.
252
What is horizontal equity?
Equal treatment of equals
## Footnote
In horizontal equity, individuals with the same income are taxed identically.
253
What is vertical equity?
Higher income earners are taxed more, while those on lower incomes pay lower taxes
## Footnote
Vertical equity aims to address income disparities by adjusting tax rates based on income levels.
254
What are the types of unemployment that can cause poverty?
Cyclical and structural unemployment
## Footnote
Cyclical unemployment occurs during economic downturns, while structural unemployment results from changes in industry and technology.
255
How does poor education contribute to poverty?
Those who lack qualifications have a marginal revenue product (MRP) high enough to access jobs in the market
## Footnote
Poor education limits individuals' job opportunities and earning potential.
256
In what way can poor health impact poverty?
It can limit productivity and earning potential and the type of jobs one can do
## Footnote
Health issues can prevent individuals from performing certain jobs or working full-time, affecting their income.
257
What are wage differentials?
Differences in wages that can contribute to relative poverty
## Footnote
Wage differentials can lead to disparities in income among individuals performing similar jobs.
258
What is a primary goal of taxation in the context of income and wealth redistribution?
To increase progressive tax systems by taxing the rich more heavily or raising the tax-free allowance on the lower end.
## Footnote
This aims to redistribute income and wealth through benefits or increased spending into the economy.
259
What argument does Laffer make regarding taxation and incentives?
That increasing taxes may distort incentives.
## Footnote
Laffer argues that high taxation can discourage work and investment.
260
What is one way the government can reduce the financial burden on the poor?
By reducing regressive taxes.
## Footnote
Regressive taxes tend to disproportionately affect lower-income individuals.
261
What are means-tested benefits?
Benefits that are only available to individuals whose income falls below a certain threshold.
## Footnote
These benefits aim to assist those in financial need.
262
What risk is associated with means-tested benefits?
The risk of a poverty trap, where individuals may have an incentive to remain on benefits rather than seek employment.
## Footnote
This can lead to greater strain on public finances.
263
What are minimum and maximum wages?
Minimum wages set the lowest legal pay for workers, while maximum wages cap earnings.
## Footnote
These policies can impact income distribution and labor market dynamics.
264
What is the evaluation of equity versus efficiency in these policies?
These policies are relatively fair but may not be efficient.
## Footnote
Balancing equity and efficiency is a common challenge in economic policy.
265
What are means tested benefits?
Benefits provided to those who desperately need it, taken away when incomes exceed a certain threshold.
## Footnote
Examples include working tax credit and job seekers allowance.
266
What is universal basic income?
A monthly income guaranteed to everyone in the population regardless of income or employment status.
## Footnote
It is designed to cover basic needs and is funded through taxation and borrowing.
267
What is one pro of universal basic income?
Supports those out of work, allowing them the time to find a job due to the safety net.
## Footnote
This can reduce financial stress while job searching.
268
How does universal basic income address issues with means tested benefits?
It overcomes bureaucratic challenges and the stress of monthly paperwork.
## Footnote
Means tested benefits often require extensive documentation.
269
List two pros of universal basic income.
* Supports those out of work
* Overcomes problems with means tested benefits
270
What is a potential con of universal basic income?
It can encourage laziness if not managed properly.
## Footnote
Critics argue it may reduce the incentive to work.
271
True or False: Universal basic income always incentivizes work.
False.
## Footnote
While it provides support, it may not always encourage individuals to seek employment.
272
What impact can universal basic income have on labor market flexibility?
It can reduce labor market flexibility, affecting occupational and geographical mobility.
## Footnote
This may lead to fewer people willing to relocate for jobs.
273
List two additional pros of universal basic income.
* Can support entrepreneurship
* Provides a safety net for individuals
274
What inflation concern is associated with universal basic income?
There are concerns that it may lead to increased inflation.
## Footnote
This is due to the potential rise in consumer demand without corresponding supply.
275
What is the national minimum wage?
A wage floor above the equilibrium
## Footnote
It sets the lowest legal wage that can be paid to workers.
276
List arguments for a minimum wage.
* Poverty alleviation
* Reducing wage differentials
* Incentive to work
* Fiscal benefit
* Increased worker productivity
* Incentive to boost human capital
* Counter monopsony employer
## Footnote
These arguments highlight the potential positive impacts of implementing a minimum wage.
277
What is one argument against a minimum wage?
Unemployment that a minimum wage can bring
## Footnote
This includes real wage unemployment, particularly affecting youth with lower MRP.
278
How does the elasticity of demand and supply affect the impact of a minimum wage?
The more inelastic the demand and supply is, the lower the impact of the wage
## Footnote
This means that if demand and supply are inelastic, the minimum wage may not significantly affect employment levels.
279
Fill in the blank: A significant cost to businesses due to minimum wage increases may lead to them experiencing the _______.
[shut down point]
## Footnote
The shut down point occurs when a business can no longer cover its costs.
280
What is a potential reaction of workers who are not paid the national minimum wage when it increases?
They may demand higher wages to ensure the wage differential returns to what it was
## Footnote
This reaction can occur due to pressure from superiors.
281
What is the effect of minimum wage on youth employment?
Youth have a lower MRP, justifying them receiving a higher wage rate, thus they are most affected by unemployment
## Footnote
This demographic may struggle to find jobs if a minimum wage is set too high.
