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Economics Edie > Theme 3 > Flashcards

Theme 3 Flashcards

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1
Q

what type of demand does the labour market have?

A

derived demand

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2
Q

what does the demand curve for labour tell us?

A

how many wrokers a business will employ at a given wage rate

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3
Q

where does the demand curve for labour come from?

A

estimated revenue product of labour

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4
Q

what is the marginal revenue product of labour? (MPRL)

A

the extra revenue generated when an additional worker is employed

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5
Q

how do you calculate the MPRL?

A

MPL x marginal revenue

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6
Q

what is diminishing returns of labour?

A

the point after the revenue generated equals the wage rate

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7
Q

where is the profit maximisation position?

A

where MC=MR

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8
Q

evaluations of MPL?

A

measuring labour producyivity is difficult (e.g. in education), collaberative work makes it harder to establish poductivity of individual workers, many people have the ability to decide their own pay

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9
Q

what does MPL also assume?

A

that there is perfect geographical and occupational mobility

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10
Q

fatcors influencing demand for labour?

A

wage rate, demand for products, productivity of labour, profitability of firms, substitutes (machinery), number of buyers of labour

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11
Q

is the supply curve of low paid work elastic or inelastic?

A

elastic, an increase in wge sees a significant increase in supply of labour

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12
Q

is the demand curve of low paid work elastic or inelastic?

A

elastic, less demand if the wage rate increases

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13
Q

is the supply curve of high paid work elastic or inelastic?

A

inelastic, because there is a smaller pool of skilled workers

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14
Q

is the demand curve of high paid work elastic or inelastic?

A

inelastic, because workers are valued and needed

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15
Q

what is the supply of labour?

A

the number of workers that are willing to work, multiplied by the hours they are willing and able to work

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16
Q

factors that influence supply of labour?

A

trade unions, wage rate, size of the working population, migration, peoples preferences of work, net advantages of work, length of training of workers, barriers to entry (qualifications)

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17
Q

what is the substiution effect of higher wage?

A

workers give up leisure to work more as they’ll make more money

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18
Q

what does an increase in productivity mean in relation to labour?

A

an increase in demand of workers

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19
Q

what can cause a change in the equilibrium of the wage rate?

A

productivity, preference for work (supply shifts right)

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20
Q

what is the conclusion from the minimum wage diagram?

A

unemployment will have a lesser decrease if demand is inelastic, whereas when demand is elastic the greater the impact on unemployment

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21
Q

what are the benefits of minimum wage?

A

reduces poverty, increase in productivity, increased incentive to accoet a job, increased investment, counterbalance the effect of monopsony employers

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22
Q

what are the drawbacks of minimum wage?

A

unemployment (excess supply), higher business costs, some industries can’t afford it, regional variations of wages, cost passed onto consumers, workers getting stuck on minimum wage, firms avoid paying the minimum

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23
Q

what is monopsony in the labour market?

A

occurs when a firm has market power in emploting the factors of production (imperfect market)

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24
Q

what does a monopsont need to do to attract new employees?

A

increase wage rate, but this will mean already employed workers will want higher wages as well

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25
what is the role of trade unions in the labour market?
can bargain for wages above the competitive equilibrium by restricting the supply of labour
26
what is the mobility of labour?
how easy it is for workers to move to different jobs in the economy
27
what is geogrpahical mobility?
how easy it is for workers to move to different regions and countries to seek work
28
what is occupational mobility?
how easy it is for workers to move from one occupation to another
29
factors that can reduce geographical mobility?
family and social ties, education, house prices, cost of living, preferences, migration controls, cultrual/language barriers
30
factors that prevent people switching jobs easily?
education/qualifications, skill level, experience, training, contract/pay, legislation, health
31
what has been done to reove barriers to occupational mobility?
investment in training schemes/vocational training, investments in education, apprenticships and uni
32
what has been done to reove barriers to geographical mobility?
reducing visa restrictions, improved the quality of rented accommodation, improved transport links, online work, housing subsidies
33
factors that influence general labour mobility?
minimum wage, labour market regulations, trade unions, zero hour contracts
34
what in inward migration?
people coming to work in the UK from other countries something the Uk is reliant on
35
what is the concentrauon ratio of a market?
the percentage of makret share taken up by the largest firms used to determine the market structure and competitiveness
36
what is normal profit?
measures the reurn to risk when commiting resources to a market or industry (opportunity cost)
37
what does break even include?
normal profit
38
what is sub-normal profit?
anything that is less than normal profit
39
what is supernormal profit?
anything that is more than normal profit, incentive for other producers to enter a market to get some of this profit
40
characteristics of perfect competition?
large number of firms, products are identical, freedom of entry and exit, price takers, producer supplies a very small portion of the entire industry, perfect knowledge
41
where is profit maximisation?
where MC=MR
42
what happens in the long run in perfect competition?
more firms enter the industry to see the profits, supply goes up and prices decrease
43
what is a fixed cost?
cost that remains the same regardless of output
44
what is a variable cost?
costs that vary based on output
45
what happens in the short run with loss minimisation?
firms continue to produce as long as revenue covers at least the variable cost
46
what happens in the long run with loss minimisation?
we return to equilibrium because firms that are not making a profit leave the industry
47
examples of industries that demonstrate perfect competition?
farmer markets, stock market, retail industry
48
what is a pure monopoly?
where only one producer exists in the industry
49
characteristics of a monopoly?
price setters, huge barriers to entry and exit, one firm, products are not homogeneous, imperfect knowledge
50
what are the origins of a monopoly?
growth of a firm, amalgamation of the firm, aquiring patent, legal means
51
what is productive efficiency?
ability of a firn to produce goods and services at the lowest possible cost, given the level of output
52
what is allocative efficiency?
state of the economy in which production meets the needs and wants of society
53
what is dynamic efficiency?
adapting and innovating to maintain efficiency in the face of changing conditions
54
what is x-inefficiency?
a firms inability to utilise its resources efficiently resulting in higher production costs
55
what is an oligopoly?
where few firms dominate
56
what are characteristics of an oligopoly?
price stters, non-price competition, few dominant firms, potental collusion, goods can be homogeneous, brand loyalty, game theory, AC curve is saucer shaped, high barries to entry
57
what are some barriers to entry in oligopoly?
economies of scale, vertical integration, brand loyalty, control of important platforms, expertise, patent protection
58
what is price discrimination?
involves charging different prices to different groups for the same good
59
what is 1st degree price discrimination?
charging consumers to maximum price they are willing to pay
60
what is 2nd degree price discrimination?
charging different prices according to the amount of consumers (economies of scale)
61
what is 3rd degree price discrimination?
charging different prices to different groups for the same product
62
what are three factors that allow a firm to discriminate?
markets must face different elasticities, markets must be kept separate, must be an imperfect market
63
advantages to producer and consumer of PD?
greater revenue and greater profit, can lead to greater reinvestment, benefit from lower fares which benefits the consumer surplus
64
disadvantages of PD?
majority have to pay the higher price, some vharged higher prices may not be able to afford it, high admin costs
65
example of price discrimination
train fares
66
what are characteristics of monopolistic competition?
large number of firms but they can set prices because of small differences between products, entry and exit is easy (few barriers), knowlege imperfect
67
what is contestable markets an extention of?
oligopoly
68
key characteristics of contestable markets?
firms behaviour influenced by threat of new entrants, no barriers to entry and exit, sunk costs, firms may deliberately limit profits made to discourage new entrants, artificial barriers
69
what are 'hit and run' tactics?
enter the industry take the profit and then get out
70
what is cream skimming?
indentify parts of the market that are high in value added and exploiting those market
71
examples of contestable markets?
short haul airlines, energy suppliers, fast food
72
benefits to firms of having monopsony power?
purchasing economies of scale (lower LRAC), supernormal profits, producer surplus to fund investment and development to improve dynamic efficiency
73
what is the issue with monopsony power in purchasing?
monopsony powers are still not happy with prices and continue to push them down, but could lead to lower prices for consumers
74
potential benefits of monopsony for consumers?
using supernormal profits to improve products, lower prices (increases real income), improved value for money
75
how might monopsony power damage consumer welfare?
squeeze lower prices out of suppliers, less choice or higher prices in the long run, monopsony power uses their power in the labour market to drive wages down
76
what are policies to counter monopsony power?
regulation, competition policy, tougher laws, using tech to sell direct from suppliers to consumers
77
what is another problem with monopsony power for suppliers/producers?
might delay payments which could cause an issue with cash flow
78

Economics Edie (4 decks)

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