Economic Theories Flashcards
Compensating wage differentials
The more unpleasant a job, the higher the reservation wage will be (jobs with undesirable characteristics will offer a higher wage to attarct workers)
Roy’s theory of self selection
A theory that explains how individuals choose occupations based on their own skills. The theory proposes that individuals choose jobs that align with their own characteristics and abilities because they have better information about themselves than potential employers do. In essence, individuals select themselves into jobs where they believe they will perform best and be most productive. This self-selection process leads to a more efficient allocation of labour resources, as individuals are matched with jobs that best suit their skills and preferences. They also select into roles with higher earnings and where they have a comparative advantage (higher relative efficiency) compared to others.
Occupational choice model
Individuals select jobs based on: skills and abilities, preferences, earnings, job characteristics, human capital investment (education and training) and utility maximisation.
Theory of demand for healthcare
Considers health as a capital good which is the stock of health that individuals possess. It depreciates with age and increases with investment. In the model, health enters the utility function directly as a good people derive pleasure from (U=H+C+L). It also indirectly affects other components of utility (leisure and consumption of goods - eg illness makes us less productive which can affect our earnings. This will reduce our consumption of goods). Individuals want to maximise utility by consuming goods, leisure and good health.
Demand for healthcare is influenced by:
economic factors such as income (higher income typically leads to greater investment in healthcare and healthier living conditions) and prices of medical services.
Personal factors such as age, education (enabling individuals to make more informed decisions about their health and healthcare) and health behaviours.
Other factors include time preferences (present bias), accessibility of healthcare services, health insurance coverage, social/cultural factors and public health policies.
