3.5.3 - Wage Determination In Competitive & Non-competitive Markets Flashcards
Describe The Labour Market Equlibirum
(3 Points)
~ Occurs where D = S.
~ Wage Below Equilibrium -> QSL > QDL, leading to excess demand, firms have to offer higher wages to get workers.
~ Wage Above Equilibrium -> QDL > QSL, leading to excess supply, unemployed workers have to accept lower wages to get a job.
Draw The Graph For Monopsonies Operating In A Labour Market & Explain It
(7 Points)
Diagram Steps:
~ Draw MRP = MCL.
~ Wage read of the supply curve.
~ Draw competitive wage and monopsony wage.
Theory:
~ To employ more workers, they must increase wages.
~ As they increase wages, they do so for everyone.
~ They employ workers, up until MRP = MCL.
~ Monopony wage, is lower then the competitive wage.
What Do Monopsonists Do With Regards To Employment & Wages Within A Labour Market?
(2 Points)
~ Reduce employment.
~ Reduce wages.
What Is A Trade Union?
(2 Points)
~ Organisation, that bargain for higher wages and better working conditions.
~ They bargain collectively.
Draw The Graph For Trade Unions Operating In A Labour Market & Explain It
(6 Points)
Diagram Steps:
~ Draw TU wage rate.
~ Draw Stu.
Theory:
~ They fight for wage rate Wtu, due to the competitive wage rate being too low.
~ Individuals below the wage rate Wtu, are happy with the new wage rate.
~ Beyond the Wtu individuals require higher rates, to be incentivised to work, generating Stu.
~ The QDL > QSL, so the TU is generating unemployment
What Do Trade Unions Do With Regards To Employment & Wages Within A Labour Market?
(2 Points)
~ Increase wages.
~ Reducing employment, compared to competitive outcomes.
Draw The Graph For Monopsony With Trade Unions Operating In A Labour Market & Explain It
(7 Points)
Diagram Steps:
~ Supply curve becomes horizontal at Wtu, as the monopsonist becomes a wage taker, to employ those workers.
~ Black line becomes the new supply, ACL and MCL, up until the black dot.
~ Black line becomes the new TU supply curve Stu = ACL.
Theory:
~ TU wants wage rate Wtu, making the monopsony become a wage taker.
~ All workers below this wage are happy, those above require higher wages to work.
~ Monopsonist have to increase the wage for everyone, causing the MCL becoming back to the original.
~ Qtu becomes the new quantity of workers.
Draw The Graph For Minimum Wages & Explain It
(6 Points)
Diagram Steps:
~ Above the equilibrium wage.
~ Draw unemployment
Theory:
~ Creates excess supply and unemployment.
~ Reduce QD, as workers are more expensive to hire.
~ Increases QS, workers are incentivised by higher wages.
~ Market is stuck in a disequilibrium.
What Do Minimum Wages Do With Regards To Employment & Wages Within A Labour Market?
(2 Points)
~ Higher wages.
~ Decreased employment.
Draw The Graph For Maximum Wages & Explain It
(6 Points)
Diagram Steps:
~ Below the equilibrium wage.
~ Draw shortage.
Theory:
~ Creates excess demand and a shortage.
~ Increases QD, as workers are cheaper to hire.
~ Decreases QS, workers are disincentivised by lower wages.
~ Market is stuck in a disequilibrium.
What Do Maximum Wages Do With Regards To Wages Within A Labour Market?
Reduce wages and inequality.
What Are Current Labour Market Issues In The UK?
(4 Points)
~ Skill shortages.
~ Youth unemployment.
~ Changes to retirement ages.
~ Earlier school leaving age.
Describe Public Sector Wage Setting
(4 Points)
~ If the government increases the NMW, it is increasing its costs.
~ If private sector wages increase and public sector ones don’t.
~ It creates tension and leads to more people going towards the private sector.
~ Forcing the government to increase public sector pay.
