Chapter 3 Flashcards
Wages
Paid hourly or weekly it is a variable cost to a firm
Salary
Paid monthly as a fixed amount
Piece rate
Fixed amount per unit produced however workers tend to focus on quantity rather than quality
Commission
Percentage value of goods or services sold
Bonus
Extra sum of money paid to workers who produce above standard amount of finish ahead of time
Overtime pay
Payment workers work excess of standard working hours
Non-wage Factors
Just wish we picked juice instead for lunch
- Job satisfaction
- working conditions
- working hours
- pension
- Job security
- Education and training
- fringe benefits
- Location
How are wages determined
By supply and demand of labor
Factors leading to shifts in demand for labor
DPC
- increase in demand
- Increase in productivity
- High price of capital
Factors leading to shift in supply of labor
FTFNUM
- fall in labor force
- increased length of training
- low fringe benefits
- Better Nonwage factors in other occupations
- Rise in unemployment benefits
- occupational and geographical immobility
What gives workers the ability to negotiate for increased wages
Strong bargaining power
- if labor or members in a trade union with high power
- if labor have high skill due to education and more experience
- if there is high demand for goods and services produced
Advantages of setting minimum wage above equilibrium
- Increase labor productivity
- more labor supply as incentive to work increases
- aggregate demand increases so firms hire more labor and produce more output leading to economic growth
Disadvantages of setting national minimum wage above equilibrium
- unemployment increases as firms demand less labor and they may replace them for machines
- Workers who are an above national minimum wage may ask for a wage increase to maintain wage difference so cost of production increase
Why skilled earn more
- low supply is they require more education and training
- High demand due to high productivity and cannot be replaced by machines
Why unskilled labor may earn more
- increase demand for goods and services
- maybe members of a trade union
- Unskilled may be working in a developed country
Why male may earn more
- Female work part time
- Female take Career breaks to have children so less promotion
- females may accept low paid jobs to have more flexible hours
- discrimination against female
Why females may earn more
Females in developed countries have high paid jobs and are well educated, May Post pone having children for career prospects
Why public sector may offer more wages
- High demand for public sector goods
- low supply of labor in public sector so higher wages
- private sector may offer longer holidays and shorter working hours
- High degree of danger so may be compensated with higher wages
Private sector May earn more
They offer high paid because public sector offers more job security and high pension
-Seek profit maximization someone to attract skilled labor that are more productive
Why primary sector and secondary sector may earn more
- High demand on goods and services produced
- workers can be members of trades union
- have more experience than Fresh graduate in service sector
- maybe working in a developed country with high standard of living
Why Tertiary sector may earn more
- Low supply due to high use of education and training
- High demand on labor due to high productivity and can’t be replaced by machines
Specialization of labor
Concentration on a particular task this occurs when work becomes an expert in a certain profession
Division of labor
Occurs when the production process is split the tasks and workers specialize in one task only
Why specialization Will lower average cost of firms
- workers specialize in what they are best at and repetition of the task would increase productivity
- Workers between more quickly and cheaply in one task only
- workers do not have to move from one job to another so time is saved
- reduces wastes
- Firms can use machine and labor so productivity increases
Why may specialization also lead to higher average cost
- Workers get bored Tasks or repetitive so productivity decreases
- difficult to replace workers who are ill as they are specialized
- specialized workers are skilled so they have no supply and if there is high demand for their service wages will increase so average cost of firms increase
Advantages of specialization for workers
- experts in skilled in their field so earnings will increase as they are low in supply and have high demand due to increased productivity
- Time and cost of training is Lower
Disadvantages of specialization for workers
- Work is boring and repetitive leading to know productivity so wages decrease
- workers specializing in law school work and be replaced by machines leading to unemployment
- work is like occupational mobility to difficult to find other jobs
Trade union
And organization of workers formed to negotiate on their behalf for improved pay in good working conditions
Role of trade union
- negotiate on behalf of the members
- help with education and training of new members
- trade union can pressure government to adopt laws that will benefit The members
Factors that increase strength of trade union
- output and income in economy is high
- high number of members
- High labor skill
- High demand for goods and services produced by members
- favorable government laws
Reason for declining trade union membership
- unfavorable government laws
- increased unemployment
- increased membership fees
- increased employment in small firms
Advantages of a trade union
- act as a channel of communication between firms and employees leading to increased productivity
- encourage workers to get education and training
- negotiate on behalf of workers so standards of living increase
Disadvantages of a trade union
- Industrial action will reduce output firms leading to lots of revenue and profits
- demanding I wages will increase costs of production for firms so profits Will decrease
- Government tax revenue decreases due to increased unemployment and lost profit
Functions of money
- medium of exchange
- Measure value
- Store value
- Standard for deferred payment
Medium of exchange
Money is widely accepted for payment of goods and services
-allow people to buy and sell goods and services
Measure of value
Unit of account
- Measure market value of goods and services.
- more efficient for trading express price value
- enables buyers and seller to agree on what items Are worth
Store of value
Money can be saved and used At a later date(useless with high inflation)
Standard for deferred payment
- allows people to borrow and lend
- they can agree on the amount to be paid in the future
Characteristics of money
- acceptability
- durability
- divisibility
- scarcity
- portability
- homogeneous
Commercial banks
Banks that aim to make profit by providing services to households and firms
Primary function of commercial banks
- Account deposits
- making loans
- enable customers to make and receive payment out of their account using debit card credit card or online banking
Secondary function of commercial banks
- collecting and clearing checks on behalf of customers
- offer financial services example buying and selling shares
- safety deposit box
- money transfer facility
- provide credit care facility
- Internet banking
Central Bank
Government on bank provides banking service to government and commercial banks and sets monetary policy
Functions of a central bank
- sole issuer Ofnotes and coins
- Government bank: except government deposits and makes loans to government
- bankers bank: Old accounts at commercial banks to settle between them
- lender of last resort:Lends to Banks which R temporarily short in cash
- manages national debt
- sets monetary policy
- holds the countries foreign currency and gold
Overdraft
short term loan with very high interest
Type of Deposits in commercial banks
- current acc
- time deposit
Backward bending S of labor
tradeoff between work and leisure time when wages rise high enough
National min wage
lowest wages a firm can pay to workers, set by gov above equilibrium
Collective bargaining
a negotiation between TU and employer
Why may TU ask for higher wages
- inc cost of living
- workers in other occupation had a rise in wages
- inc profit of firms
- inc labor productivity
Closed shop
employers can only employ member of TU
Industrial action
when worker disrupts production to pressure employer to agree to demands
Time deposit
period of notice must be given in advance to withdrawal, interest is payed
Wealth
stock of assets
How can wealth influence sp
- generates income as dividend on shares or interest on saving
- can be cashed in
- act as a collateral
- inc confidence levels
