Steedsy Theme 3

Question 1

Define marginal revenue product of labour

Answer 1

The extra revenue generated when an additional worker is employed

Question 2

How do you calculate marginal revenue product

Answer 2

Output x price

Question 3

At what point is it profit maximisation on a labour market diagram

Answer 3

Marginal cost = marginal revenue
Always employ at mc=mr

Question 4

Evaluate marginal revenue product of labour

Answer 4

Problems:
Measuring labour efficiency can be difficult
Harder to measure productivity in consultancy and education
Collaborative work is difficult to measure individual workers

Question 5

What are the factors influencing the demand for labour?

Answer 5

The wage rate -Higher wage means lower demand for labour
The demand for the products
Productivity of labour, more productive, greater demand
Profitability of firms can afford to get more workers
Substitutes, machinery replaces demand for workers
The number of ‘buyers’ of labour

Question 6

Why is labour supply and demand so wage elastic for low skilled and low paid jobs

Answer 6

Labour supply is highly elastic as a small change in wage would cause a large increase in workers offering themselves for work
Labour demand is highly elastic because a small change in wage will cause a large decrease in demand, because there are so many employed, so it would cost a lot more for the business

Question 7

Why is labour supply and demand so inelastic for high paid occupations?

Answer 7

Labour supply is inelastic due to a smaller amount of people who can work it as requires experience and training as it’s a high skilled job
Labour demand is inelastic as they are needed as they are valued highly so deserve the pay

Question 8

Define the supply of labour

Answer 8

The labour supply is defined as the number of workers, willing and able to work multiplied by the hours they are willing and able to work

Question 9

What are factors influencing the supply of labour?

Answer 9

Wage rate
The size of the working population
Migration
Peoples preferences for work
Net advantages of work e.g holiday entitlement, job security, promotion opportunities
Working leisure
Barriers to entry - strict requirements to qualifications will make labour supply less
Labour subsidies

Question 10

What is the cause of the backward bending supply curve?

Answer 10

A situation in which as real wages increase beyond a certain level, people will substitute leisure for paid work and so higher wages lead to a decrease in the labour supply and so less labour time being offered for sale.

Question 11

What is the substitution effect? (to do with the backward, bending supply curve.)

Answer 11

A higher wage makes work more attractive than leisure, as wage goes up you work longer hours

Question 12

What is the income effect? (to do with a backward, bending supply curve)

Answer 12

A higher wage means workers can achieve a target income by working fewer hours
-ve effect : as wage goes up, you work less as you must meet you target income
+ve effect: as wage goes up, income goes up

Question 13

Benefits of minimum wage

Answer 13

Reduce poverty
Increases productivity
Increased investment
Increase the incentives to accept a job

Question 14

Problems of the minimum wage

Answer 14

More unemployment
Reduces investment by firms as higher costs
Cost push inflation

Question 15

What is a monopsony in the labour market?

Answer 15

A monopoly occurs when a firm has market power in employing factors of production. A monopsony means there is one buyer and many sellers.

Question 16

What happens when you apply a minimum wage to a monopsony?

Answer 16

In a monopsony, a minimum wage can increase wages without causing unemployment. It also won’t increase employment as the wage is already so low

Question 17

What are the two main factors influencing the mobility of labour?

Answer 17

Geographical mobility - how easy it is for a worker to move between different regions and countries to seek new work
Occupational mobility - how easy it is, for a worker to move from one occupation to another.

Question 18

Evaluate the impact of geographical mobility

Answer 18

Depends on family, education, house prices, cost of living, immigration policy

Question 19

Factors that impact occupational mobility

Answer 19

Training
Skill level / qualifications
Experience

Question 20

What has the government done to reduce geographic immobility?

Answer 20

Support transport links
Working from home
Housing subsidies
Reducing construction for visas

Question 21

What has the government done to reduce occupational immobility?

Answer 21

Training programs
Laws in education (education till you’re 18)
Apprenticeships and universities
Labour market regulations

Question 22

What is the concentration ratio?

Answer 22

The percentage of market share taken up by the largest firms

Question 23

What is subnormal profit?

Answer 23

This is profit which is less than normal- profit < average costs

Question 24

What is supernormal profit?

Answer 24

Profit achieved in excess of normal profit

Question 25

What are the characteristics of perfect competition?

Answer 25

Large number of firms Products are identical Freedom of entry and exit of the industry Firms have no control over the price they charge Each producer has a lower output Consumers and producers have perfect knowledge about the market

Question 26

How does wheat farming illustrate perfect competition

Answer 26

- one producer cannot influence the price, many sellers, homogenous products. However there will be a difference in quality so not totally perfect competition - many producers (200k farms in the uk)

Question 27

Why is monopolistic competition good and bad

Answer 27

+ innovation +economies of scale - Low price - Limited output - No strive for quality - eventually diseconomies of scale

Question 28

Characteristics of a pure monopoly

Answer 28

Firms are price setters (control over price) Huge barriers to entry and exit One seller, many buyers Not homogenous products Imperfect information

Question 29

What are the three ways, monopolies form?

Answer 29

Merger or take over Organic growth Through acquired patent

Question 30

Why is Apple regarded as a monopoly?

Answer 30

49% market share Huge barriers to entry : substantial capital, infrastructure costs, strategic partnerships, compliance with industry regulations. Deals with device makers so costs are lower which makes it harder for competitors Not homogeneous products as there is a difference in camera quality Price discrimination, so they are price setters

Question 31

Why is Google an example of monopolistic competition?

Answer 31

90% market share Huge barriers to entry : technological infrastructure, huge start-up costs 2 billion users, one seller many buyers Not homogeneous as they have different features e.g image search Price setters : freemium pricing (free, but you have to pay if you want additional services)

Question 32

What is productive efficiency and where is it on a monopolistic competition diagram

Answer 32

Producing the largest number of products and services based on the resources available (at the bottom of the AC curve) at the lowest cost

Question 33

What is allocative efficiency and where would you find it on the monopoly diagram?

Answer 33

Allocative efficiency is a characteristic of a market that performs efficiently by producing the number of goods and services that most closely resemble the demand for those goods and services. When resources are distributed optimally. It is when price = MC (go MC = MR first then up to the MC curve). If not operating at this point on the graph then they are inefficient

Question 34

What is dynamic efficiency?

Answer 34

Involves adapting and innovating to maintain efficiency in the face of changing market conditions, consumer preferences and technology. It will be dynamically efficient if the AC curve moves down

Question 35

What is X inefficiency?

Answer 35

A firms inability to fully utilise its resources, resulting in higher production costs than required.

Question 36

What is X inefficiency?

Answer 36

A firms inability to fully utilise its resources, resulting in higher production costs than required. Higher costs so higher prices

Question 37

What efficiencies do monopolies have and don’t have

Answer 37

X inefficient Productively inefficient Allocatively inefficient Dynamically efficient Diseconomies of scale

Question 38

What is price discrimination?

Answer 38

Involves charging different prices to different groups for the same good

Question 39

What are the requirements for price discrimination to work?

Answer 39

Markets must have: Different elasticities Must be kept separate from each other No resale Must be an imperfect market

Question 40

Advantages to the producer of price discrimination

Answer 40

Greater revenue and greater profits Greater investment due to greater revenue

Question 41

What are the disadvantages to the producer of price discrimination?

Answer 41

Some have a higher price causing reduction in consumer surplus Those who pay for the highest prices may not be able to afford it

Question 42

What is an oligopoly?

Answer 42

A large number of firms in the industry, but the industry is dominated by a small number ofvery large producers

Question 43

Characteristics of oligopolies

Answer 43

Price setters -stable prices Similarity in price Compete on nonprice characteristics e.g quality Dominated by a few firms Interdependence of firms Good’s usually highly differentiated High barriers to entry

Question 44

What are the barriers to entry for oligopolies?

Answer 44

Economies of scale Brand loyalty Patent protection Expertise and reputation

Question 45

Explain how broadband providers are an example of an oligopoly

Answer 45

- Few dominant firms - 4 firm concentration ration is 80% - Interdependence - similar pricing : virgin $24/m , sky $15/m - barriers to entry - large economies of scale. Technological sunk costs - non price competition - offers free subscriptions

Question 46

What is monopolistic competition

Answer 46

NOT MONOPOLY COMP This is an adaption of perfect competition

Question 47

Characteristics of monopolistic competition

Answer 47

- Large number of firms in the industry - May have some element of control over price, due to the fact they are able to differentiate their product in someway from their rivals - products are therefore close, but not perfect substitutes - entry and exit from the industry is relatively easy - few barriers to entry and ext - non price competition - consumer and producer knowledge is imperfect

Question 48

Why does the long run perfect competition the AR curve return to equilibrium

Answer 48

As more firms enter or leave the market, depending on whether it’s a loss or profit in the short run

Question 49

Ways of differentiating products (non-price)

Answer 49

Quality Product performance Packaging

Question 50

Demonstrate how craft beer manufacturers are an example of monopolistic competition

Answer 50

Many micro-firms in the UK - 2000 Slight differential in product - some citrus flavoured Not too many barriers to entry, but can be higher start-up costs No dominant producer

Question 51

What are contestable markets?

Answer 51

A market in between oligopoly’s and monopolistic competition

Question 52

Characteristics of contestable markets

Answer 52

- Firms behaviour influenced by the threat of new entrants to the industry - no barriers to entry or exit - No sunk costs - Firms may deliberately limit profits to discourage new entrants - entry limit pricing - Firms may attempt to erect artificial barriers to entry e.g lower prices until the competition decreases

Question 53

What are the barriers to entry for contestable markets?

Answer 53

Overcapacity - provides opportunity to flood the market and drive down price in the event of a threat of entry Aggressive, marketing and branding strategies to tighten up the market Potential for predatory or destroyer pricing Find ways of reducing costs and increasing efficiency to gain competitive advantage

Question 54

What tactics are used by firms in contestable markets

Answer 54

Hit-and-run tactics - enter the industry take the profit and get out quickly- due to the freedom of entry and exit Cream skimming - identifying parts of the market that are high in value and exploiting those markets

Question 55

Define contestable market

Answer 55

Where an entrant has access to all production techniques available to new firms and entry decisions can be reversed without cost

Question 56

Explain how the fast food industry is an example of a contestable market

Answer 56

- Many burger vans and small businesses - low start up costs for burger vans so low barriers to entry - artificial barriers - som sell as low as $2 - No sunk costs - 3 firm concentration ratio is 40%, others is 55%, therefore not an oligopoly as others dominates Eval: could be high barriers to entry as they still have to purchase the vans and high health regulations

Question 57

How does a monopsony damage consumer and producer welfare? Supply side monopsony

Answer 57

- They use their buying power to squeeze lower prices out of suppliers - lower wages to workers - consumers have less choice and higher prices in the long run. If farmers and other growers leave the industry. - monopsony employers might use the power in the labour market to drive wages down - notoriously slow payers which impacts cash flow for suppliers

Question 58

What does the government do to try and control the impacts from a monopsony? Monopsony of suppliers

Answer 58

Price capping Minimum wage Regulation May block mergers and takeovers Can be inforced to pay suppliers quicker

Question 59

What is minimum efficient scale?

Answer 59

This is where all the internal economies of scale have been fully exploited Correspond to the lowest point on the long run, average cost curve

Question 60

Example of wage differentials due to a difference in education

Answer 60

Medicine (8 years at uni) - £90k bus drivier (1 year apprenticeship) - $30k

Question 61

example of wage differential when you join at a level as opposed to after a degree

Answer 61

army officer ater a levels - $27k after degree - $50k

Question 62

examples of where pay is signifcantally different between skilled and unskilld jobs

Answer 62

neurosurgeon - $126k waiter -$28k

Question 63

research examples where pay is significantally differentbecuase of gender differences

Answer 63

female footballer - $47k a year men - $3m a year

Question 64

explain why house prices are different du to geographical differences. provide an example

Answer 64

London median = $520k newcastle median = $200k reasons: cost of living education standards transort links

Question 65

how has globalisation impacted UK wage rates

Answer 65

- cheaper labour over seas - imports - greater wage competition

Question 66

How have the government used supply side policy to increase participation rates

Answer 66

- decreasing income tax -increasing the mobility of labour - training programmes

Question 67

What are participation rates

Answer 67

A measure of the percentage of the working population that is currently employed or actively seeking employment

Question 68

What is the employment rate for each sector

Answer 68

Primary - 1% Secondary - 18% Tertiary - 81%

Question 69

What is the participation rate of the uk

Answer 69

80%

Question 70

In theory workers from the north could move to the south for better employment opportunities. Why dont they

Answer 70

Attatchment to their local communities Expensive housing

Question 71

Name the different pricing methods and define

Answer 71

Limit pricing - selling the products at low prices in order to stop new entrants from entering the market. Predatory pricing - selling a product at a low price in order to reduce existing competition Price discrimination - charging different prices for the same product

Question 72

Why do contestable markets operate at normal profits

Answer 72

To avoid hit and run tactics to remain competitive and discourage new firms from joining

Question 73

What is the market share now of BT as a result of the acquisition of EE

Answer 73

28% market share and is now the market leader

Question 74

Why do firms do limit pricing

Answer 74

Discourages new entrants into the industry as the producer surplus is reduced This will decrease the competition decreasing the number of substitutes making demand more inelastic This means when firms increase their prices in the future, they will more more consumers and see a limited reduction in demand Market share also increases leading to economies of scale

Question 75

What is the impact of lower wages

Answer 75

Less disposable income Lower welfare Worst quality of life Lower worker productivity

Question 76

Benefits of collusion

Answer 76

Increased supernormal profits and so can attract more productive staff increases barriers to entry into a market. By working together to control prices or restrict output, colluding firms can create artificial barriers that make it difficult for new firms to enter and compete effectively.

Question 77

What is elasticity of labour supply

Answer 77

The responsiveness of labour supply to a change in wage (how many more sre offering their labour)

Question 78

What are the determinants of the elasticity of labour supply

Answer 78

- Nature of skills required in the job - The greater the skills required, the harder it is for workers not in the profession to take jobs in the profession. More skills required = more wage inelastic - length of training period - longer it takes, more inelastic - time under consideration - more inelastic in the short run as workers need to hand in their notice to move jobs. Becomes more wage elastic in the long run

Question 79

What is the elasticity of labour demand

Answer 79

The responsiveness of labour demand to a change in wage

Question 80

What are the determinants of the elasticity of demand for labour

Answer 80

Think SECT - Substitutability of capital for labour - if a firm can easily swap workers for machinery, it will be more wage elastic - Elasticity of demand for the product: if it’s inelastic, the firm can raise their prices without much of an impact on demand, so won’t let go many workers as can push the additional costs onto the consumer in the form of higher prices. Therefore will be more wage inelastic if demand is inelastic - Costs of labour as a percentage of total costs. If percentage is high will be more elastic. - Time period - short run, it will be harder to bring in capital to a firm, some more wage inelastic

Question 81

Advantages of the division of labour

Answer 81

Higher quality and more choice Increased productivity

Question 82

Negatives of division of labour

Answer 82

Overspecialisation Demotivated workers

Question 83

Positives and negatives of nationalisation

Answer 83

+ Economies of scale so lower prices for consumers so maximising consumer surplus + More focus on service provision so higher quality and maximising social welfare + job security and more jobs created + all profits reinvested - potential for diseconomies of scale - lack of innovation - lack of incentive to cut costs - opp cost - risk of allocative inefficiency due to lack of competition

Question 84

Explain tradeable pollution permits

Answer 84

Forces firms to invest in green technology, or they’ll have to buy the pollution permits Pollution decreases to social optimum increasing allocative efficiency Promotes long run investments in Green tech In the long-term, the government will reduce the number of pollution permits on the market, increasing the price, further incentivising investments in Green tech

Question 85

Evaluate tradeable pollution permits

Answer 85

Increased costs of production for firms leading to possible shutdowns or cost, push inflation

Question 86

How would a firm increase geographical mobility and how would the government increase geographical mobility

Answer 86

Housing subsidies ( firm) This is where our firm heavily subsidises houses - essentially paying or reducing the price of a house to get workers to move there. Investment in transport (government)

Question 87

How would a firm increase occupational mobility and how would the government increase occupational mobility

Answer 87

Firm - advertising of the job Government - investment in education and training