Theme 3: Business behaviour and the labour market Flashcards
(47 cards)
What are the limits to government intervention? (3.6.2)
- Asymmetric information: parties have different info, wrong decision causes
inefficient outcome, opportunity cost - Regulatory capture: influenced by firms, lobbying, bias, inconsistency
What are the impacts of government intervention on price, profit, efficiency,
quality, and choice? (3.6.2)
- Consumer prices reduced
- Reduces firm supernormal
- Quality improves
- Firm efficiency increased
- Choice increases
What government intervention exists to protect suppliers and employees in
monopsonies? (3.6.1)
- Independent regulators appointed
- Encouraging industry self-regulation
- Nationalisation
- Minimum prices
- Subsidising suppliers
What government intervention exists to promote competition and contestability in
industries? (3.6.1)
- Promoting small business growth (lower tax, grants, training)
- Deregulation
- Competitive tendering for gov. contracts (auctioning, provides services to
public sector, encourages efficiency) - Privatisation
What government intervention exists to control mergers? (3.6.1)
- Investigation if monopoly power thereafter
- Determines if competition impacted
- CMA controls
What government intervention exists to control monopolies? (3.6.1)
- Price regulation (price cap preventing exploitation)
- Profit regulation
- Performance targets
- Quality standards (protecting consumers)
Why do wage differentials exist? (3.5.3)
- Non-homogenous labour (different MRP / supply, discrimination)
- Non-monetary benefits
- Immobility
- Trade unions
- Monopsonies
What are the characteristics of a perfectly competitive labour market? (3.5.3)
- Many potential workers/employers
- Homogenous labour
- Perfect information
- Firms wage-takers
- No entry/exit barriers
What economic government intervention exists in the labour market? (3.5.3)
- Minimum wage (reducing exploitation, reducing relative poverty)
- Maximum wage (below equilibrium, less societal inequality, lower labour costs
for firms) - Public sector wage setting (affects industry, monopsonist)
- Policies tackling immobility (training programmes, relocation subsidies)
What current labour market issues exist in society? (3.5.3)
- Gender pay gap
- Executive pay
- Automation and future of employment
What type of immobility exists in market failure of labour markets? (3.5.2)
- Geographical immobility (costs moving, reluctance)
- Occupational immobility (hard changing, skill gap, causes mismatch between demand / supply)
What factors influence the elasticity of the supply of labour? (3.5.2)
- Skill / qualification levels
- Time
- Unemployment levels
What factors influence the quantity supplied of labour? (3.5.2)
- Pecuniary (wage rates)
- Working population size
- Migration
- Trade unions
- Income tax
- Welfare
What is marginal physical product and marginal revenue product referring to?
(3.5.1)
- MPP: output addition caused by extra labour unit
- MRP: value addition caused by extra labour unit
What factors influence the demand for labour? (3.5.1)
PDPC
- Product price
- Derived demand (goods / services)
- Productivity (labour)
- Capital (machinery) costs
What factors influence the elasticity of the demand for labour? (3.5.1)
SECT
- Substitutability (w/ capital)
- Elasticity (product)
- Cost of labour of TC
- Time period
What is ‘hit and run’ competition in contestable markets? (3.4.7)
- Supernormal by firms in industry
- New firms enter, low entry barriers
- New firms leave when prices normal
What are sunk costs, and what does the degree of contestability refer to?
(3.4.7)
Sunk: Incurred irrecoverable costs, reduces contestability
Lower entry barriers = higher contestability degree
What are the characteristics and assumptions of contestable markets? (3.4.7)
Characteristics:
- Entry freedom into industry
- Low exit costs
Assumptions:
- No entry / exit barriers
- Low sunk costs
- Firms profit-maximising
- No collusion
- Perfect knowledge
What are the costs and benefits of a monopsony to firms, consumers, employees,
and suppliers? (3.4.6)
Firms:
- Lower prod. costs, MC 🡇
- Poor supplier relationship
- Encourages suppliers into alternative buyers
Consumers:
- Lower prices from lower costs
- May decrease quality
Employees:
- Product monopsony improves wages / investment
- Labour monopsony employs less, decreases wages
Suppliers:
- Exploitation potential, reducing income
What are necessary conditions for third-degree price discrimination to work, and
what benefits occur as a result of it? (3.4.5)
Conditions:
- Market power (price-maker)
- 2 markets with different PED
- Markets separated, limiting resale
- Information on consumer willingness
Reduces consumer surplus, increases supernormal.
What is third-degree price discrimination and what diagrams are associated with
it? (3.4.5)
Different consumer groups charged different prices for same product. 2 markets,
1 elastic, 1 inelastic.
What are the advantages and disadvantages of monopoly power? (3.4.5)
Advantages:
- Dynamic efficiency
- Stable employment
- Internationally competitive
- Higher EoS, better efficiency
Disadvantages:
- Less efficiency, unincentivised
- Exploit suppliers
- Higher prices / lower output for consumers
What is a natural monopoly? (3.4.5)
Industry can support only one firm, competition impossible.
