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Economics > 7.2 > Flashcards

7.2 Flashcards

1
Q

What are the factors that influence an individual’s choice of occupation? (3)

A

Limiting factors, Wage factors, and Non-wage factors.

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2
Q

What is a limiting factor? (1)

A

A factor that may limit an individual in achieving a higher wage. (E.g. discrimination, criminal records, strength, qualifications, mobility)

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3
Q

What is a wage factor? (1)

A

A factor that influences a worker’s wage. (E.g. commission (% of sales), overtime, bonus, tip)

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4
Q

What is a non-wage factor? (1)

A

A factor that doesn’t involve wage in the worker’s occupation decision. (E.g. working hours, location, holidays, working environment, stock options, family expectations, pension, job satisfaction, health insurance, company care, “fringe benefits”)

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5
Q

How do we determine wage? (1)

A

The supply and demand for labour determine wages. If the demand for workers is high, the wages would be higher and if the demand is low, wages would be lower.
If the supply is high, the wages would be lower and if the supply is low, the wages would be higher.

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6
Q

What factors affect the supply of labour? (4)

A

The size of the labour force, the level of skill/education/training/qualifications required, and wage and non-wage factors that affect how appealing their occupation is compared to others.

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7
Q

What factors affect the demand for labour? (3)

A

Productivity of workers, availability and cost of capital, and the size of the industry.

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8
Q

What are the different types of wage factors? (8)

A

Salary, wage, bonus, commission, piece rate pay, performance-related pay, share options, fringe benefits.

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9
Q

What is a salary? (1)

A

An amount of money paid on an agreed regular basis, usually monthly.

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10
Q

What is a wage? (1)

A

An agreed amount of money per hour.

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11
Q

What is a bonus? (1)

A

Paid in addition to a salary and usually a one-off payment. It is dependent on the company earning high levels of profits.

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12
Q

What is a commission? (1)

A

A payment which is typically a percentage of the value of the transaction involved.

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13
Q

What is a piece rate pay? (1)

A

An agreed amount paid per completed item that the worker produces.

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14
Q

What is a performance-related pay (PRP)? (1)

A

Payment of the worker based on how well they perform.

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15
Q

What is a share option? (1)

A

Payment through the issuing of additional shares in the company.

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16
Q

What is a fringe benefit? (1)

A

Benefits provided in addition to the normal salary, such as healthcare, schooling, a company car or even housing.

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17
Q

What factors affect wage determination? (4)

A

Relative bargaining power of workers, Government policies, Public opinions and Discrimination.

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18
Q

What happens when the relative bargaining power of workers is high? (2)

A

Workers have more power, leading to trade unions, to demand higher wages because they allow workers to bargain and negotiate collectively. Also, workers can go on strike if the firm refuses to raise wages collectively, with less consequence. The stronger the TU, the higher the wages.

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19
Q

What happens if the relative bargaining power of workers is low? (2)

A

Employers have more power so there are monopsonies, which means that there is only a single employer in the market. if there is only one employer for a profession, workers have no choice about who they work for and must accept a low wage.

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20
Q

How do government policies affect wage determination? (1)

A

They use a minimum wage.

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21
Q

How does public opinion affect wage determination? (1)

A

Sometimes there may be widespread public support for a profession which pressures the government to increase their wages and vice versa.

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22
Q

How does discrimination affect wage determination? (1)

A

Some groups in society may receive lower wages or higher wages based on their group. (E.g. Race, religion, gender, disability, class, sexual orientation)

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23
Q

What is a minimum wage?

A

A minimum wage is the lowest wage a person could receive from their job. It is illegal to pay someone below the minimum wage.

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24
Q

What is the Elasticity of Labour Demand?

A

The responsiveness of demand for labour to a change in wage.

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25
Q

What is the Elasticity of Labour Supply?

A

The responsiveness of supply for labour to a change in wage.

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26
Q

What does it mean if demand for labour is elastic?

A

A change in wages leads to a proportionally bigger change in quantity demanded.

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27
Q

What does it mean if demand for labour is inelastic?

A

A change in wages leads to a proportionally smaller change in quantity demanded.

28
Q

What does it mean if the supply of labour is inelastic?

A

A change in wages leads to a proportionally smaller change in quantity demanded.

29
Q

What are the determinants of the Elasticity of supply for labour? (3)

A

The skills and qualifications, length of the training period, the mobility of labour, and the time period.

30
Q

What are the determinants of the Elasticity of demand for labour? (3)

A

The proportion of the firm’s costs on them, how easily they can be replaced with capital, and the time period.

31
Q

What are the arguments trade unions could use to push for higher wages? (4)

A

Higher worker productivity, Higher firm profitability, Inflation and comparability arguments.

32
Q

What is industrial action? (1)

A

Worker actions which disrupt production in order to pressure on employees to meet their demands.

33
Q

What are the industrial actions workers could do? (3)

A

Strikes, “go-slow”, and “work to rule”.

34
Q

What are the factors that affect the strength of a trade union? (4)

A

How easily they can be fired, how easy to replace, affordability, and the Government’s side.

35
Q

What is the primary sector?

A

The extraction and collection of raw materials.

36
Q

What is the secondary sector?

A

The processing of raw materials into semi-finished/finished goods.

37
Q

What is the tertiary sector?

A

Producing services.

38
Q

What is the quarternary sector?

A

Industries involved in the collection, processing and transmission of information.

39
Q

What are the factors affecting the size of the firm? (6)

A

Availability and access to finance, the success of the firm in the market, age of the firm, size of the market, number of firms in the market and whether or not there are significant dis/economies of scale in the industry.

40
Q

How do firms get bigger? (2)

A

Internal Growth and External Growth

41
Q

What is Internal Growth?

A

Expansion of the firm by investing in more capital, workers and output.

42
Q

What is External Growth?

A

Expansion of a firm by merging or acquiring.

43
Q

What are the three types of External Growth? (3)

A

Vertical integration, horizontal integration and conglomerate integration

44
Q

What is Vertical Integration?

A

Merging with a different stage of the supply chain.

45
Q

What is Horizontal Integration?

A

Merging with a company producing the same product at the same stage.

46
Q

What is Conglomerate Integration?

A

Merging with an unrelated firm.

47
Q

What are the Advantages of Internal Growth?

A

Safer, Easier to maintain and control, less finance required, less level of external dept.

48
Q

What are the Disadvantages of Internal Growth?

A

It takes more time to grow and increase profits, may be limited resources to grow the firm, and less opportunity for promotion of workers.

49
Q

What are the advantages of External Growth?

A

Access to new knowledge, management expertise, and skill, it is very easy to achieve large-scale growth, and the responsibility is shared with mergers.

50
Q

What are the Disadvantages of External Growth?

A

There is a high risk, uncertainty about the company being merged/bought, and it requires the owner to have more management skills.

51
Q

What are the Advantages of Vertical Growth?

A

More control over the supply chain, the FOPs would be cheaper and the mark-ups would reduce.

52
Q

What are the Disadvantages of Vertical Growth?

A

Less focused, less specialised and owners may lack knowledge, and it may be difficult to manage and be expensive.

53
Q

What are the Advantages of Horizontal Growth?

A

Rapidly increases market share by gaining the customers from the other firm, increases potential scale for economies and creates more promotion opportunities.

54
Q

What are the Disadvantages of Horizontal Growth?

A

Culture-clash, slow communications and more staff losing jobs.

55
Q

What are the Advantages of Conglomerate Growth?

A

Risk diversification, cross subsidisation, the firms gain synergies and cross-investment.

56
Q

What are the Disadvantages of Conglomerate Growth?

A

There may be a lack of knowledge of the industry, focus loss, creates barriers, and squeezes out the competition.

57
Q

Define Economies of Scale.

A

Cost advantages relating to an increase in the scale of production, leading to lower long-run average costs.

58
Q

Define Diseconomies of Scale.

A

Cost disadvantages relating to an increase in the scale of production, leading higher long-run average costs.

59
Q

Define Dis/Economies of Scale.

A

When long-run average costs are lowered/increased by the firm increasing its scale of production.

60
Q

Define Purchasing Economy of Scale.

A

Bulk-buying discounts. As a firm increases output, its suppliers will provide volume-based discounts for raw-materials purchase. The more you buy the more you save.

61
Q

Define Managerial Economy of Scale.

A

As a firm grows, it can employ more specialised workers who work more efficiently and this lowers the ATC.

62
Q

Define Financial Economy of Scale.

A

Commercial banks charge lower interest rates on loans to larger firms who they consider less risky.

63
Q

Define Marketing Economy of Scale.

A

Marketing costs can be high. As output increases, the marketing costs are spread over more units of output.

64
Q

Define Technical Economy of Scale.

A

As a firm increases its scale it can often install new machinery that lowers the cost of production. The firm may also use existing machinery more efficiently.

65
Q

Define Risk-Bearing Economies of Scale.

A

Large firms can produce a wide range of products and supply them in many geographical locations. This spreads the risk of failure for each section of the firm and in doing so lowers ATC.

Economics (2 decks)

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