Micro Book 6

Question 1

marginal revenue product

Answer 1

the value of the additional output produced by an extra worker. Found by multiplying MPP by the price of a unit of output

Question 2

evaluation points for MRP (6)

Answer 2

• not all goods have a market price
• difficult to calculate productivity in some industries (e.g. education vs manufacturing)
• some people set their own pay
• pay could change without MRP changing
• cost of hiring workers higher than just the wage rate (e.g. NI contributions)
• firms have incentive to pay less than workers’ MRP

Question 3

evaluation points for backwards bending individual labour supply curve (2)

Answer 3

• do workers really have a target income
• does the model work better over a workers lifetime (to explain retirement)

Question 4

possible causes of a labour supply curve shift (4)

Answer 4

• migration and population change
• education and training
• changes in other related labour markets
• changes in working conditions

Question 5

net advantages

Answer 5

pecuniary benefits + non-pecuniary benefits - disutility

Question 6

pecuniary benefits

Answer 6

financial/monetary benefits e.g wages, commission

Question 7

non-pecuniary benefits

Answer 7

non-financial benefits including free lunch, gym membership also includes rewarding work, possibility of promotion and relationships with coworkers

Question 8

disutility of work

Answer 8

factors reducing a worker’s utility e.g. unsociable hours, risk/danger etc

Question 9

a payment to workers to increase their pay to compensate for factors causing disutility

Answer 9

compensating wage differential

Question 10

factors making the supply of labour more price inelastic (4)

Answer 10

• occupational immobility of labour
• geographical immobility of labour
• short run wage change
• strong role for non-wage incentives

Question 11

national minimum wage (2025)

Answer 11

• 21+ = £12.21 ph
• 18-20 = £10 ph
• under 18 = £7.55 ph

Question 12

real world evaluative points for NMW (4)

Answer 12

• when NMW was first introduced (1999) unemployment continued to fall in the UK
• 2016 survey showed firms increased prices or accepted lower profit margins due to NLW
• Card and Kruger (1992) fast food study showed little evidence of unemployment as a result of NMW in New Jersey and Pennsylvania
• Caffe Nero took away free lunch (non-pecuniary benefits) meaning no change in net advantages for workers

Question 13

arguments for NMW (6)

Answer 13

• potentially reduces poverty and inequality
• reduced gender pay differentials
• lower government welfare expenditure
• low paid workers will have high MPC so increases consumption
• may increase workers’ MRP
• counteracts monopsonist power

Question 14

arguments against NMW (8)

Answer 14

• won’t alleviate poverty for those unable to work
• may cause unemployment especially amongst the young
• poorly targeted as not everyone earning NMW lives in poverty
• NMW acts as a pay norm and holds down wages
• potentially inflationary (cp and dp)
• can significantly increase some firms’ cost of production
• ignores regional differences with higher living costs
• state employs many NMW workers so could worsen government finances

Question 15

benefits trap

Answer 15

a situation where its more rewarding for someone to rely on transfer payments from the government rather than accept paid work

Question 16

trade union

Answer 16

a group of workers who come together to protect their interests (usually in terms of pay and conditions)

Question 17

collective bargaining

Answer 17

the process by which an employer and a trade union (or unions) negotiate the pay and conditions of a group of workers

Question 18

forms of industrial action (4)

Answer 18

• strikes
• work to rule
• go slow
• lock out (like a strike but by employers)

Question 19

closed shop

Answer 19

where all members of a workforce belong to the same union

Question 20

evaluative points for trade unions (3)

Answer 20

• closed shops are illegal
• trade unions can offset monopsony employer power
• through collective bargaining, unions can maintain employment and increase wages by negotiating a change in working practices and/or improvement in productivity

Question 21

monopsony

Answer 21

the only employer of a particular type of labour e.g. the armed forces

Question 22

industries where there’s only one monopsony employer but all workers are trade union members

Answer 22

bilateral monopoly

Question 23

wage discrimination

Answer 23

paying different workers different wages to do the same job

Question 24

income

Answer 24

generated, earned or received over time e.g wages, interest, rent, dividends, inheritance

Question 25

why incomes vary (3)

Answer 25

- wage/salary differentials - assets owned (can't earn income from assets if none are owned) - goverment policy (taxation and transfer payments)

Question 26

wealth

Answer 26

made up of assets that are capable of generating income and have a market value e.g houses, shares

Question 27

why wealth varies (3)

Answer 27

- inherited wealth (easier to generate income and maintain wealth from inherited wealth) - governments find it difficult to redistribute wealth - changes in asset prices

Question 28

absolute poverty

Answer 28

being unable to afford the basic necessities of life e.g food, shelter, clothing

Question 29

relative poverty

Answer 29

living in a household with income below 60% of the median (UK)

Question 30

causes of poverty (5)

Answer 30

- unemployment and structural change - lack of education and training - higher wages for skilled workers - single-parent families - increased life spans (pensioners)

Question 31

consequences of poverty (5)

Answer 31

- increased crime and drug problems - health problems (e.g. Awaab Ishak, 2020) - social unrest - low educational outcomes - poverty cycle

Question 32

poverty cycle

Answer 32

1. children born in poverty 2. low educational outcomes (can't afford to live in areas with better schools) 3. low skilled work and higher chance of unemployment

Question 33

tackling poverty and inequality using taxes and benefits (5)

Answer 33

- increase benefits to improve living standards - cut benefits so higher incentive to work - use means tested benefits (EVAL: remarkably low universal benefits now) - increase personal allowance bracket - use more direct taxation moving away from indirect

Question 34

ways of tackling poverty and inequality (5)

Answer 34

- NMW - _promoting economic growth (trickle down theory)_ - education and training - direct provisions + subsides - universal basic income

Question 35

interpreting Lorenz curve

Answer 35

the further from the perfect equality line, the more unequal distribution

Question 36

interpreting Gini coefficient

Answer 36

the greater the value, the more uneven the distrubution of income