demand and supply in labour markets Flashcards
1
Q
how is the equilibrium wage rate determined?
A
by the meeting point of labour supply and demand curves
2
Q
what do wages depend on?
A
-the value they add to a firm when employed
- marginal revenue product of an additional worker
3
Q
what are the main influences on the
demand for labour? (5)
A
- wages ( cost of labour, if wages rise above the MPR, firms will reduce their workforce to maintain profitability. MOVEMENT ALONG CURVE
- productivity of the worker
- demand for the good as labour is a derived demand
- substitutes for labour ( can capital be better used)
- non wage costs such as NI, contribution, pension
4
Q
what are the main influences on the supply of labour?
A
- wage rates. higher wage rates provide a greater incentive to work. opportunity cost of leisure. MOVEMENT ALONG SUPPLY CURVE
- n.o qualified people available
- non wage benefits such as status and holidays
- population / demographics ( net migration may cause an increase in unskilled workers
5
Q
describe the difference in elasticity for 2 different types of workers
A
- elastic: unproductive strawberry picker, cleaner, welsh worker
- inelastic: productive strawberry picker, surgeon, London
6
Q
why are wages lower in wales
A
- in places like London firms are more profitable and can pay higher wages e.g. financial firms pay larger bonuses
- Wales has suffered high unemployment due to deindustrialisation pushing wages down because more people are willing to fill vacancies
- Shortage of housing in places like london limiting the supply of workers
- Greater concentration of workers with high levels of skills and qualification in places like London compared to Wales
7
Q
what are the characteristics of the UK Labour market?
A
- wages are set by demand and supply ( market forces )
- low levels of regulation ( greater flexibility leads to a more dynamic job market where businesses can quickly adapt to changing economic conditions)
- mobility of labour ( grographical, sectoral mobility )
- easy to employ workers/ switch jobs ( flexible contracts such as part time, skills and qualification like healthcare and engineering in high demand)
8
Q
what factors increase flexibility in the labour market? (6)
A
- growth in part time/ temporary contracts
- growth in zero hours contracts
- decline in trade union power
- increase in self employment
- migration from europe (skills diversification)
- changes in welfare benefits ( e.g. welfare programmes that include job training )
9
Q
what is the positive impacts of a flexible labour market? (3)
A
-unemployment falls ( especially after 2008, businesses could match labour supply in response to market conditions)
- greater job security and motivation
- flexible working benefits mainly skilled workers
10
Q
what are the negative impacts of flexible labour markets?
A
- some degree of unemployment ( some part time employees may get less hours than they want)
- greater job insecurity (reduction in TU power leads to demotivation)
- flexible working can be damaging for unskilled workers ( lower pay, less opportunity for job progression
11
Q
- what are some government policies to increase labour market flexibility?
A
- reducing the minimum wage
- making it easier to hire and fire workers
- better education and training schemes
- encourage immigration
- reducing income tax rates making benefits less attractive
- reducing TU power
12
Q
- what is the implication of reducing the minimum wage?
- what’s the implication of making it easier to hire and fire workers?
A
- can increase income inequality and relative poverty
- can create job insecurity
13
Q
- what’s the implications of encouraging immigration ?
- what’s the implications of reducing TU power ?
A
- can be unpopular and cause a housing crisis
- job insecurity and firms could set lower wages
14
Q
- where are most immigrants in the UK from?
- where does most of the uk migrate?
A
- india
- China
- pakistan
- poland
-ireland
- india
- -Australia
- USA
- Soain
15
Q
- when was the national minimum wage introduced?
- who benefited most from the minimum wage?
A
- 1999
- part time female workers, unskilled workers, care workers
16
Q
what are the arguments for the minimum wage? (2)
A
- horizontal equity encourages fair compensation for work ( not discriminated against based off factors such as their background)
- horizontal equity encourages firms to invest in labour as they know that they are subject to the same tax rates and regulations as competitors allowing them to budget for labour costs
17
Q
what are the arguments against national minimum wage? (3)
A
- has the possibility to create unemployment ( however evidence shows different)
- adds more red tape especially for smaller businesses which can lead to increased business costs and slower decision making
- does little to reduce poverty as the group this is aimed at is generally unemployed
18
Q
what impact does the national minimum wage have on monopsonies?
A
- minimum wage would decrease the market of a power of a monopsony
- many workers don’t have much bargaining power to set wages as it is not easy to move jobs
- e.g. firemen could set their own wage if there wasn’t a minimum wage
19
Q
how can the minimum wage vary regionally?
A
in wales the minimum wage may be sufficient but in London in may not be enough
20
Q
what does a net inflow of workers result in? (2)
A
- increase in the supply of labour particularly unskilled
- increase in the demand of labour as there’s an increased population
21
Q
what are advantages of immigration? (3)
A
- the government has made it easier for skilled labour to migrate as immigrants must meet a set criteria
- can help to offset the impact of our aging population ( a younger workforce can help the budget by increasing tax revenues )
- migrants can return to their country of origin in times of unemployment
22
Q
what are the disadvantages of immigration? (3)
A
- overcrowding and there’s a lack of housing
- underground economies, some migrants are likely to work in the black market avoiding regulations and minimum wages
- some people feel that migrants take jobs away ( however they increase demand for g&s )
23
Q
what do prices and profits act as in a market?
A
signals and influence
24
Q
what is the rationing effect?
A
- when a g/s is limited in supply, the price tends to rise leading to a decrease in demand
- meaning that those who are willing and able to pay the higher price will obtain it
e.g. shortage of oil
25
what is the incentive effect?
an increase in demand and higher prices act as an incentive for suppliers to produce more in the long run
26
what is signalling?
- when the price mechanism acts as a signal to producers and consumers
- rising prices give a signal to consumers to reduce demand
- falling prices give a positive message to consumers but a a negative signal to producers
e.g. free healthcare encourages consumers to go for any minor ailment
27
what is derived demand?
- demand depends on another product or service
- demand is not for its own intrinsic use
28
what is competitive demand?
- when two goods are substitutes they are in this
- the demand for the g/s can depend on the XED of a substitute
29
what is joint demand?
- occurs when 2 goods are compliments
- increase in the sales of one will depend on the XED between 2 goods
30
what is composite demand
-exists when a g/s has alternative uses
- e.g. milk for cheese and yoghurt
- if the demand for yoghurt increases the supply for yoghurt will increase but the supply of cheese will fall
31
what is joint supply ?
- occurs when products are by products
- e.g. beef and leather from a cow
32
what is competitive supply
- exists when firms can produce alternative goods or services from its existing factors of production
- e.g. a farmer can choose between producing potatoes/corn
- this is determined by signalling and price mechanism
33
what is composite supply?
when the demand for a good or service can be satisfied via different sources
- e.g. salt from sea salt or mines
34
1. what are interrelated markets?
2. what is a factor market?
3. what is a product market?
1. different types of markets
2. concerned with markets for factors of production
3. market concerned with the final good / service
35
what are the 4 different types of market?
- housing
- commodity
- financial
- agricultural
36
1. what is demand like in the housing market?
2. what is supply like in the housing market?
1. rising living standards have caused an increase in demand for housing a normal good
- most homeowners have a mortgage and speculation can effect the housing market
2. - supply is fairly inelastic in the short run ( takes time to build, availability of land is limited)
- can be divided into submarkets ( e.g. rural, urban and suburban areas vary in demand, type of housing and pricing )
37
1. what is a commodity market?
1. markets in a global scale, often includes unused goods such as oil, precious metals and grain
38
1. what is demand like in a commodity market ?
2. what is supply like in a commodity market?
1. derived, in recent years we have seen an increase in demand especially for china and india
2. supply can be scarce since oil is non renewable
OPEC was set up to control oil prices
39
what is a financial market? (2)
- concerned with loans, mortgages and online savings
- the price of money is given by real interest rate
40
what is supply like in a financial market?
- the curve is perfectly inelastic
- supply is controlled by the MPC at the bank of England
41
what is the agricultural market
where agricultural products such as crops and livestock are bought and sold
42
1. what is demand like in the agricultural market
2. what is supply like in the agricultural market?
1. demand is relatively inelastic especially for staple foods
- however can be effected by income and consumer preferences
2. external shocks can cause price fluctuations
- the government intervenes to stabilise the market by using a buffer stock scheme
43
what are consumers and producers ?
rational, they wish to maximise their utility
44
1. what do producers do as an example of rational behaviour?
place a monetary value on g/s in order to maximise profits
45
1. give an example of rational behaviour in consumers
1. consumers base their consumption off utility, as the marginal utility goes down after each additional increment of consumption consumers will buy less
46
what should we assume about rational behaviour (2)
- there is perfect information
- producers have no influence
47
arguments against rational behaviour
- it can be difficult to place a value on utility
- won’t have the time to work out the utility gained
- consumers can be influenced by advertising, asymmetrical information and gut feeling
