Theme 3

Question 1

What does principle agent problem mean?

Answer 1

When there is a conflict in priorities between the owner of an asset and the person who has control of the asset

Question 2

What does labour costs mean?

Answer 2

The total expenditure borne by employers for employing staff

Question 3

What does capital costs mean?

Answer 3

The one-time expenses paid for things used in the production of goods or service

Question 4

What does organic growth mean?

Answer 4

Where a business grows from within (natural growth)

Question 5

How could a business grows from by organic growth?

Answer 5

• expanding the product range
• number of business units
• location
• advertisement
• better customer service
• extend opening hours

Question 6

What does derived demand mean?

Answer 6

Demand that comes from the demand for something else

Question 7

What does marginal product mean?

Answer 7

The change in output as a result of one additional unit of input being added to production

Question 8

What does marginal product of labour mean?

Answer 8

The additional output produced by hiring one more unit of labor

Question 9

What does marginal revenue mean?

Answer 9

The additional revenue a business earns by selling one more unit of a product or service

Question 10

How to you calculate marginal revenue product of labour?

Answer 10

Marginal product of labour x marginal revenue

Question 11

What does profit maximisation mean?

Answer 11

Marginal cost of employing extra labour equals marginal revenue product of labour (MC = MR)

Question 12

What does demand for labour mean?

Answer 12

The quantity of labor that employers are willing and able to hire at a given wage rate

Question 13

What are the problems with profit maximisation?

Answer 13

• measuring labour productivity can be difficult
• collaborative work makes it difficult to establish the productivity of individual workers

Question 14

What are some factors influencing the demand for labour?

Answer 14

• wage rate
• demand for products
• productivity of labour
• profitability of firms
• substitutes
• number of buyers of labour

Question 15

What does monopsonist mean?

Answer 15

a single buyer in a market, holding significant power to influence prices and quantities

Question 16

What does supply of labour mean?

Answer 16

The total number of hours that workers are willing and able to offer for work at a given wage rate

Question 17

What are some factors influencing the supply of labour?

Answer 17

• wages
• size of working population
• migration
• preferences
• net advantages of working
• work and leisure

Question 18

What does the backward bending supply curve mean?

Answer 18

That after a certain wage point, an increase in wages leads to a decrease in the quantity of labor supplied

Question 19

What does income effect mean?

Answer 19

As wages increases, work less hours

Question 20

What does substitution effect mean?

Answer 20

As wages increases, work more hours

Question 21

What does elastic labour demand mean?

Answer 21

As small change in wages leads to a proportionally larger change in the quantity of labor demanded

Question 22

What does elastic labour supply mean?

Answer 22

A small change in wages leading to a relatively large change in the amount of labor supplied

Question 23

What does inelastic labour demand mean?

Answer 23

A big change in wage rates will lead to a smaller change in employment levels

Question 24

What does inelastic labour supply mean?

Answer 24

The quantity of labor supplied is relatively unresponsive to changes in the wage rate

Question 25

What are some advantages of organic growth?

Answer 25

- not as risky - cheaper - retain control of the business

Question 26

What are some disadvantages of organic growth?

Answer 26

- longer to grow - competitors can copy you

Question 27

What does external growth mean?

Answer 27

A company's expansion through acquiring other businesses or forming partnerships

Question 28

What does horizontal growth mean?

Answer 28

Expanding the product or service to new markets

Question 29

What does backwards vertical growth mean?

Answer 29

When the business takes over a company at an earlier stage in the production process

Question 30

What does forwards vertical growth mean?

Answer 30

When a business takes over a company at a later stage in the production process

Question 31

What does diversification mean?

Answer 31

Integration with a totally unrelated industry

Question 32

What are some advantages to backward vertical growth?

Answer 32

- guarantee supplies - can also supply to other businesses (profit)

Question 33

What are some disadvantages to backward vertical growth?

Answer 33

- expensive

Question 34

What are some advantages to forward vertical growth?

Answer 34

- guarantee somewhere to sell - closer to customers

Question 35

What are some disadvantages to forward vertical growth?

Answer 35

- expensive

Question 36

What are some factors effecting the back end of,supply of labour?

Answer 36

- length of training of workers - barriers to entry - trade unions - tax and benefits incentives and disincentives - labour subsides

Question 37

What does equilibrium wage rate mean?

Answer 37

When wage equals the quantity of labour

Question 38

What are some benefits of minimum wage?

Answer 38

- reduces poverty - increases productivity - increases the incentives to accept a job - increase investments - counterbalance the effect of monopsony employers

Question 39

What are some disadvantages of minimum wage?

Answer 39

- increase unemployment - cost push inflation - black market - poorest don’t benefit - limited impact on relative poverty

Question 40

What are some problems with minimum wage?

Answer 40

- certain industries are vulnerable to a living wage - regional variations in wage - higher wages passed onto consumers - more workers are getting stuck on the minimum wage

Question 41

What does demergers mean?

Answer 41

The separation of a large company into two or more smaller firms (often as a result of an earlier merger)

Question 42

Why would business merge?

Answer 42

- grow the business - increase efficiency - increase market share - access to new markets - reduced competition

Question 43

Why might businesses demerge?

Answer 43

- they are no better off financially - it didn’t work culturally - the firms are better off returning to organic growth

Question 44

What does synergy mean?

Answer 44

When everyone is much better off co-operating as the big firm

Question 45

What does monopsony mean?

Answer 45

When a firm has market power in employing factors of production (there is one buyer and many sellers)