economics-micro Flashcards

Question 1

Q

What is economics?

Answer

A

Economics is a social science that studies how humans make decisions when they face scarcity.

Question 2

Q

What does scarcity mean?

Answer

A

Scarcity means that our wants and needs are greater than the amount of available resources.

Question 3

Q

Economic agents make decisions based on:

Answer

A

Political Judgement - Short term outcomes - Moral Judgement - Normative Statements

Question 4

Q

What is a positive statement?

Answer

A

They are objective statements that can be proved by referring to evidence

Question 5

Q

What is a normative statement?

Answer

A

They are statements of opinion that contain a value judgement

Question 6

Q

What is a value judgement?

Answer

A

They are judgements about society that cannot be quantified and tested, found within a normative statement.

Question 7

Q

What does ceteris paribus mean?

Answer

A

all other things kept equal.

Question 8

Q

How is economics Similar to other sciences?

Answer

A

Develop theories and make models - Use economic models to make predictions

Question 9

Q

How is economics different to natural sciences?

Answer

A

Controlled approaches experiments cannot be conducted - economist use the assumption ceteris paribus

Question 10

Q

What is the basic economic problem?

Answer

A

There are not enough resources on earth to satisfy humans’ unlimited wants and needs.

Question 11

Q

What are the 3 foundations to economics decisions?

Answer

A

What to produce? How to produce? Who to produce for?

Question 12

Q

What is a need?

Answer

A

something necessary for survival e.g food, water, shelter

Question 13

Q

What is a want?

Answer

A

Things people can live without but desire e.g luxury cars, designer clothes

Question 14

Q

What are the 4 factors of production?

Answer

A

land, labor, capital, enterprise

Question 15

Q

What is meant by land?

Answer

A

Finite and non-finite resources found on the planet, including animals, water and natural materials.

Question 16

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What is meant by labour? (2 things)

Answer

A

Human capital - the value human labour brings to the production process Labour force - the population that can work.

Question 17

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What is meant by capital?

Answer

A

Human made resources: technology machinery

Question 18

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What is meant by enterprise?

Answer

A

The entrepreneurs who take a risk to make a profit by creating things from the other factors of production.

Question 19

Q

What are the 3 main economics agents? What are their roles?

Answer

A

Producers: supply goods/services - Consumers: purchase goods/services - Governments: Establish rules in an economy

Question 20

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What decisions does a producer make?

Answer

A

Producers must decide what products to make and the selling price of products.

Question 21

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What decisions does a consumer make?

Answer

A

Consumers decide what products to purchase and how much they want to spend on products.

Question 22

Q

What is an opportunity cost?

Answer

A

The loss of potential gain from other alternatives when one alternative is chosen.

Question 23

Q

What are some problems with opportunity cost?

Answer

A

Not all factors have alternatives - Some alternatives are unknown - Agents may lack information on alternatives

Question 24

Q

What is a trade-off?

Answer

A

sacrificing one good or service to purchase or produce another

Question 25

Q

Traditionally, what is the main incentive that firms base their decisions on?

Question 26

Q

What is a PPF curve?

Answer

A

A curve which shows the maximum amount of two goods or services an economy can produce. -it explains the constraints experienced by society. <img></img>

Question 27

Q

How is opportunity cost shown on the PPF curve?

Answer

A

As you move along the curve, to produce good X you have to sacrifise production of good Y.

Question 28

Q

Why is the PPF curved?

Answer

A

The law of diminishing returns: - As we increase the production of Good X the more of Good Y has to be sacrificed

Question 29

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What do points on, inside and outside the PPF mean?

Answer

A

On =Productively efficient, all factors are being fully utilised Inside = Under utilisation of factors of production
Outside = Not currently possible to produce at this point.

Question 30

Q

What cause an outwards shift in the PPF?

Answer

A

Economic growth: - Improvements in labour and technology - Increased resources (increase in total number of workers) <img></img>

Question 31

Q

What causes an inwards shift in the PPF?

Answer

A

Negative economic growth: - A loss of resources (e.g. natural disaster) - Migration <img></img>

Question 32

Q

What is static efficiency?

Answer

A

Refers to the efficiency atany point in timeand can be separated into allocative and productive.

Question 33

Q

What is productive efficiency?

Answer

A

Any point on the PPF, when all resources are being used asefficiently as possible. Products are produced at a level where average costs are at their lowest

Question 34

Q

What does a linear PPF show?

Answer

A

Opportunity costs are constant <img></img>

Question 35

Q

How does the specialisation of factors of production change along the PPF curve?

Answer

A

Towards any end of the PPF, factors of production are specialised for the production of the good of the opposite end. This is because your opportunity cost is greater towards the end of the PPF

Question 36

Q

What can cause a PPF to shift out in one direction?

Answer

A

When improvements in capital/labour can only benefit one good. <img></img>

Question 37

Q

What is demand?

Answer

A

the willingness and ability of buyers to purchase goods at a given price within a particular time period.

Question 38

Q

What is price?

Answer

A

Price is what the buyer pays for a specific good or service.

Question 39

Q

What is the income effect?

Answer

A

achange in quantity demanded caused by a change in consumer income

Question 40

Q

What is the substitution effect?

Answer

A

When demand for the cheaper good increases demand for the costlier good decreases.

Question 41

Q

What is a complement good?

Answer

A

Goods that are often used together; when price increases both demands fall (PS4 and PS4 games)

Question 42

Q

What is a substitute good? (Competitive Demand)

Answer

A

Goods that are alternatives to eachother. An increase in price of good A would cause a rise in demand for good B and a fall for good A (McDonald’s Vs KFC)

Question 43

Q

What is a demand curve?

Answer

A

a curve that shows the relationship between the price of a product and the quantity of the product demanded <img></img>

Question 44

Q

What causes a contraction and extension in demand?

Answer

A

Change in price Rise in price = Contraction Fall in price = Extension <img></img>

Question 45

Q

What factors can cause a shift in the demand curve?

Answer

A

P - Population I - Income R - Related goods (subs and complements) A - Advertisement T - Tastes E - Expectations (future price change) S - Season

Question 46

Q

What effect does increased income have on the demand curve for normal goods vs inferior goods?

Answer

A

For normal goods, increased income will lead to increase in quantity demanded (Cars) For inferior goods, increased increased income will lead to a fall in quantity demanded (Rice)

Question 47

Q

What is a Giffin good? How does its demand curve look?

Answer

A

A Giffin good is one for which as price increases demand increases e.g. necessities for low income earners - Upwards sloping demand curve.

Question 48

Q

What is a Veblen good? How does its demand curve look?

Answer

A

A Veblen good is one for which as price increases, demand increases e.g. expensive goods for celebrities - Upwards sloping demand curve.

Question 49

Q

What is elasticity?

Answer

A

Elasticity measures the responsiveness of one variable to the change in another variable

Question 50

Q

What is the equation for percentage change?

Answer

A

(X2 - X1)/X1

Question 51

Q

What is Price elasticity of demand (PED)? What is the equation for it?

Answer

A

PED is a measure of how quantity demanded responds to a change in price. <img></img>

Question 52

Q

What is elastic demand?

Answer

A

Elastic demand is when PED > 1. This means a % change in price will lead to a larger % change in quantity demanded. <img></img>

Question 53

Q

What is inelastic demand?

Answer

A

Inelastic demand is where the 0 < PED < 1. This means a % change in price will lead to a smaller % change in demand. <img></img>

Question 54

Q

What does unit elastic mean?

Answer

A

Unitary elasticity is where the PED = 1. % change in price will lead to an equal % change in quantity demanded. <img></img>

Question 55

Q

What is perfectly elastic demand?

Answer

A

PED = ± infinity Any price increase will cause demand to drop to zero. <img></img>

Question 56

Q

What happens when you increase and decrease price when PED is perfectly elastic?

Answer

A

Increasing price means nobody is willing or able to purchase - Decreasing price means firms are unable to cover costs.

Question 57

Q

What is perfectly inelastic demand?

Answer

A

PED = 0 Any price change won’t affect demand. <img></img>

Question 58

Q

Why is PED always negative?

Answer

A

Because price and demand have an inverse relationship

Question 59

Q

What is income elasticity of demand (YED)? What is the equation for it?

Answer

A

YED measures how much demand changes with a change in real income. <img></img>

Question 60

Q

What is the YED for normal necessitiy goods?

Answer

A

Normal necessity goods have a positive income elasticity, - 0 < YED < 1 - (income rises, demand increases).

Question 61

Q

What is the YED for inferior goods?

Answer

A

Inferior goods have negative income elasticity, YED < 0 (income rises; demand decreases).

Question 62

Q

What is cross elasticity of demand (XED)? What is the formula for it?

Answer

A

XED is a measure of how the quantity demanded of one good responds to a change in the price of another good. <img></img>

Question 63

Q

What is the XED for substitute goods?

Answer

A

XED is positive for substitutes (XED > 0)

Question 64

Q

What is the XED for complementary goods?

Answer

A

XED is negative for complementary goods (XED < 0)

Answer 64

A

XED = 0, as independent goods are not related to each other.

Answer 65

A

Price per unit x Quantity <img></img>

Answer 66

A

Decreasing price = increases total revenue. Increasing price = decreases total revenue.

Answer 67

A

Decreasing price = decreases total revenue. Increasing price = increases total revenue.

Answer 68

A

When PED is inelastic, most of the burden is passed onto consumers, since a change in price doesnt really affect demand - When PED is elastic the firms will take up the burden, since increasing the price will cause a large fall in demand <img></img>

Answer 69

A

NASBIT - Necessity Goods - Addictive habit forming goods - Substitutes - Brand Loyalty - Income % spent - Time (SR vs LR)

Answer 70

A

Becomes more price elastic

Answer 71

A

Expensive - Price elastic Cheap - Price inelastic

Answer 72

A

Price elastic, as you have more time to find alternatives

Answer 73

A

At zero demand/high price : price elastic At midpoint : unit elastic At zero price/high quantity : price inelastic PED of ± 1 = maximised total revenue. <img></img>

Answer 74

A

Supply is the quantity of a good or services that producers are willing and able to produce at a given price at a particular time.

Answer 75

A

A curve that shows the relationship between the price of a product and the quantity of the product supplied. <img></img>

Answer 76

A

as price increases, quantity supplied increases all other factors constant.

Answer 77

A

Increase price - extension Decrease price - contraction <img></img>

Answer 78

A

The increase in price incentivises firms to increase output to make more profits.

Answer 79

A

When the quantity supplied increases/decreases at every price level. <img></img>

Answer 80

A

P - Productivity I - Indirect taxes N - Number of firms T - Technology S - Subsidies W - Weather C - Costs of production OR A change in the cost, quality or quantity of factors of production.

Answer 81

A

Price elasticity of supply measures how the quantity supplied of a good response to a change in its price. <img></img>

Answer 82

A

PES > 1. A percentage change in price will lead to a greater percentage change in quantity supplied. <img></img>

Answer 83

A

0 < PES < 1. A percentage change in price will lead to a smaller percentage change in quantity supplied <img></img>

Answer 84

A

PES = 1. Percentage change in price will lead to and equal percentage change in quantity supplied. <img></img>

Answer 85

A

PES = ± Infinity. Any quantity demanded can be met without changing price, but if price changes quantity supplied falls to 0 <img></img>

Answer 86

A

PES = 0. Supply is fixed regardless of any change in price. Change in demand cannot be met easily. <img></img>

Answer 87

A

A high PES means firms are able to respond quickly to any changes in price and demand

Answer 88

A

Spare production capacity - Improve technology - Flexible working patterns

Answer 89

A

Refers to a period of time in when at least one factor of production is fixed, usually capital.

Answer 90

A

Refers to a period of time when all factors of production can be variable

Answer 91

A

Short run = Inelastic. Capital is fixed and it takes time to increase factors of production, making it it difficult to react to changes in price. Long run = Elastic. Firms can increase capacity as all factors are variable and have longer to react.

Answer 92

A

Levels of stock - Spare production capacity - Artifcial Limits - Factor mobility - Time

Answer 93

A

because if a firm tried to expand their production, they would have a larger pool of labour to hire. Their ability to attract this labour is also high as people need jobs.

Answer 94

A

Supply = Demand - This is the only price where the amount consumers want to buy is equal to the amount producers want to sell.

Answer 95

A

Disequilibrium is when the market supply and demand is not equal.

Answer 96

A

Functions of the price mechanism will ration away excess supply/demand

Answer 97

A

When there is excess supply or demand

Answer 98

A

Excess supply will force producers to cut the price. Supply would contract and demand would extend until the equilibrium price is reached again. <img></img>

Answer 99

A

Excess demand will signal to producers that they can generate more profit by raising the price, and will do so. Demand will contract and supply will extend until the equilibrium price is reached again. <img></img>

Answer 100

A

Ceteris Paribus - Supply and demand are independent from each other - All markets are perfectly competitive

Answer 101

A

The free interaction of supply and demand

Answer 102

A

An increase in demand will cause an increase in price. Supply will extend and form a new equilibrium. - A decrease in demand will cause the price to fall. Supply will contract and form a new equilibrium. <img></img>

Answer 103

A

An increase in supply will cause a decrease in price. Demand will extend and form a new equilibrium. - A decrease in supply will cause an increase in price. Demand will contract and form a new equilibrium. <img></img>

Answer 104

A

Signal to firms price is to high/low 2. Firms incentivesed to change price 3. Rations away excess demand/supply 4 Allocates resources effectively

Answer 105

A

two goods are in joint demand if they are complementary e.g. ps4 and ps4 games

Answer 106

A

When the demand for one good leads to the demand for another e.g. an office and office furniture

Answer 107

A

Goods that have a number of uses in the production process. e.g. steel

Answer 108

A

A production process that can yeild 2 or more outputs e.g. cows milk and beef

Answer 109

A

Productivity measures the output efficiency of firms and economies.

Answer 110

A

The 4 factors of production: - Land - Labour - Capital - Enterprise

Answer 111

A

Output produced in a given time ÷ total number of workers/total hours worked.

Answer 112

A

Better technology - More training - More education

Answer 113

A

Division of labour involves dividing the workforce and allocating specific individuals to specific tasks.

Answer 114

A

Is when workers/firms focus on specific tasks to gain a greater degree of efficiency

Answer 115

A

Leads to economies of scale which can reduce long run average costs - Reduce cost of training - Increase labour productivity

Answer 116

A

lack of flexible labour (immoblie workers) - bored workers - over reliant on 1 firm

Answer 117

A

If one variable factor of production is increased while the others stay fixed marginal product will initially rise then fall.

Answer 118

A

The extra output from adding one extra factor input

Answer 119

A

The total output from all factor inputs

Answer 120

A

Total product / number of inputs

Answer 121

A

Because at least one factor of production stays fixed, usually capital.

Answer 122

A

Rises initially because of specialisation/utilisation of capital - then falls because fixed factors of production constrain production - for example a pizza shop with 5 ovens wouldn’t benefit from from adding 6 or 7 or 8 workers - this all happens because of the law of diminishing returns

Answer 123

A

If MP is positive, each factor input employed increases output, if MP is negative each factor employed decreases output. - Total product is maximised when adding an extra factor input doesn’t change output in any way

Answer 124

A

Better training - Better management - Improved technology

Answer 125

A

When MC rises, MP is falling When MC falls, MP is rising

Answer 126

A

Marginal costs is the extra cost of producing one more unit of output MC = change in TC ÷ change in quantity

Answer 127

A

Law of diminishing returns <img></img>

Answer 128

A

When marginal cost < average cost = average cost is decreasing. When marginal cost > average cost = average cost is increasing. <img></img>

Answer 129

A

When marginal cost < average cost, average cost is decreasing. When marginal cost > average cost, average cost is increasing. So MC can only cut AC when the AC is neither increasing or decreasing, the lowest point. (MC=AC - Productive efficiency)

Answer 130

A

Fixed cost do not vary with output - Variable cost vary with output

Answer 131

A

AC = TC ÷ Q

Answer 132

A

AC is AFC + AVC 2. Initially AFC is falling as TFC is spread across more output and AVC is falling as workers specialise and begin to take advantage of underutilised capital 3. When LoDM kicks in my AVC rises as fixed factor cause a contraint to my variable factors 4. This will offset the effects of my AFC falling and cause AC to rise, explaining why it is ‘U’ shaped <img></img>

Answer 133

A

Total fixed cost can be spread across greater output So you dividing a constant number by a number that is always increasing <img></img>

Answer 134

A

economies of scale is a reduction in average cost due to operating on a larger scale (cost benefits of operating on a larger scale)

Answer 135

A

Large firms have bargaing power with suppliers and can gain discounts for buying in bulk

Answer 136

A

When a firm becomes larger, they can expand their production range so they can spread the cost of uncertainty. - If one part is not successful, they have other parts to fall back on. can help lower average costs egMajor pharmaceuticals companies, such pfizer inc, all undertake research in developing new drufe

Answer 137

A

Large firms are able to employ specialist managers who can make better decisions and have more experience

Answer 138

A

Larger firms can divide their marketing budgets across larger outputs, so the average cost of advertising per unit is less than that of a smaller firm.

Answer 139

A

large firms can often borrow more money at a lower rate of interest as they are seen as less risky

Answer 140

A

Large firms can afford to invest in specialist equipment which can help to reduce average cost

Answer 141

A

External economies of scale occur when a whole industry grows larger and firms benefit from lower long-run average costs.

Answer 142

A

New technology firms have concentrated along the M4 motorway, partly because of access the Heathrow airport, but also because of agglomeration economies -Silicon Valley outside San Francisco has become a hotspot for IT related industries. This attracts skilled workers. Firms have to spend less on recruiting skilled labour - Ruhr valley in Germany has many chemical firms, meaning that are supplies and transport links related to the industry

Answer 143

A

An increase in average costs as a result of operating on a large scale

Answer 144

A

Wastage and loss can increase, as materials may seem in plentiful supply. - Communication becomes more difficult, with an increasing number of staff - Worker alienisation: Wokers may feel unomotivated in a large workforce, leading to decreased productivity - Managers may be less able to control as workforce increases

Answer 145

A

1- Human resource competition, driving wages up 2- Physical resource competition, driving raw material prices up 3- Infrastructure competition eg transport congestion Think hip

Answer 146

A

If average costs keep decrease firms can pass these reduced costs on to consumers in the form of lower prices undercutting competition and gaining a bigger market share - This can force other firms out of business and cause a monopoly

Answer 147

A

Returns to scale describes the effect on increasing the scale of production/output

Answer 148

A

When % change in output > % change in input. - Increasing all factors of production leads to a more than proportional increase in output.

Answer 149

A

When % change in output < % change in input - increasing all factors of production leads to a less than proportional increase in output

Answer 150

A

When % change in output = % change in input - Increasing factors of production will lead to a proportional increase in output

Answer 151

A

Increasing returns to scale contributes to economies of scale - Decreasing returns to scale contributes to diseconomies of scale <img></img>

Answer 152

A

MES is the lowest level of output needed to be productively efficient - This is the lowest level of output where full EoS can be exploited and after this point a firm no longer receives EoS

Answer 153

A

A curve thats shows the minimum possible average cost at each level of output. <img></img>

Answer 154

A

Initially a firm is confined by fixed factors of production - Eventually they can increase their factors of production until they are confined again by a fixed level of factors of production - this continue and makes multiple SRAC curves which make up the LRAC curve

Answer 155

A

External economies and diseconomies of scale. <img></img>

Answer 156

A

They argue although diseconomies of scale will occur with increasing output this will be offset with continued reduction in average costs. <img></img>

Answer 157

A

In the long run all factors are variable so a firm is able to increase all its factors, reducing average costs. - However as they continue to increase factors of production become harder to manage and coordinate properly, so average costs increase <img></img>

Answer 158

A

For a firm to operate on its LRAC curve it must be using the most appropriate mix of factors of production - So in the short run cost can be reduced to this minimum level as some factors are fixed

Answer 159

A

Total amount from a firms sales TR = Q x P

Answer 160

A

revenue per unit sold AR = TR ÷ Q

Answer 161

A

Extra revenue incurred from selling an additional unit of a good MR = change in TR ÷ change in Q

Answer 162

A

AR = TR ÷ Q = P x Q ÷ Q = P

Answer 163

A

AR = MR = D - The curve is horizontal when there is perfect competition as the firm is a price taker so demand is perfectly elastic - The firm must take the price set by the market and any increase in price will cause quantity sold to drop to 0

Answer 164

A

TR is a diagonal straight line going from bottom left to top right - So when AR is constant TR increases proportionally with sales.

Answer 165

A

Average revenue is Total Revenue ÷ Quantity - total Revenue = Price x quantity of output - each point on the curve represents the price of the product in the market. - Price determines the demand for a product, hence average revenue curve is also demand curve.

Answer 166

A

When a firm drops its prices is not just dropping its prices for the next unit sold but all the units its selling, even the units its already sold so MR will drop twice as fast as AR

Answer 167

A

When MR is positive every additional sale bring additional revenue so TR increasing - When MR is negative every additional sale brings less revenue so TR is decreasing - TR can only be maxed when MR is neither increasing or decreasing so it is maxed when MR = 0

Answer 168

A

Normal profit is the minimum level of profit required to keep opperating in the long run, but not enough to attract other firms into the market Normal profit is when AC = AR (0 opportunity cost)

Answer 169

A

Any economic profit below normal profit AC > AR

Answer 170

A

Only normal profit can be made

Answer 171

A

Normal profit at the very minimum

Answer 172

A

Signals to other firms to enter the market, but barriers to entry and competition must be considered

Answer 173

A

Profit = Total Revenue - Total Cost

Answer 174

A

Any economic profit above normal profit and represents that a firm is making more money than in its next best alternative market AR > AC

Answer 175

A

when MC=MR - If marginal cost is less than marginal revenue, the firm could increase profit by expanding production. - If marginal cost is greater than marginal revenue, the firm could increase profit by reducing output.

Answer 176

A

Economic profit cosiders both explicit (FC VC) and implicit (opportunity costs) costs Accounting profit only considers explicit costs.

Answer 177

A

Normal <img></img>

Answer 178

A

Supernormal profits can be made <img></img>

Answer 179

A

Although in the short run supernormal profits can be made, this will signal to firms to enter the market, so these supernormal profits will be shared among multiple firms

Answer 180

A

If it cant make a normal profit

Answer 181

A

In the short run firms have fixed cost to pay even if they don’t produce and cannot sell assets - so they will continue to produce with prices below AC as long as they cover AVC so fixed cost can start to be payed off

Answer 182

A

If in the short run the market price doesn’t cover variable costs as this will only increase debts

Answer 183

A

An invention is an advancement in knowledge. - An innovation involves putting that advancement to use in a new product or service.

Answer 184

A

First introduced by economist Joseph Schumpeter - It describes the continuous process of innovation and change in acapitalist economy,where new technologies and business models disrupt and replace older ones, leading to the destruction of existing companies and industries. - For example, the rise of online retailers like Amazon has led to the closure of many brick-and-mortar stores, but has also created new jobs and consumer benefits such as lower prices and greater convenience.

Answer 185

A

Governments decide how much they should intervene in the production and consumption process.

Answer 186

A

The law of demand states that there is an inverse relationship between price and quantity demanded, all other factors constant.

Answer 187

A

Normal luxury goods have a positive income elasticity - YED > 1

Answer 188

A

Ifmarginal productis lessthan average product, thenaverage productdeclines. Ifmarginal product is greater than average product, thenaverage productrises. <img></img>

Answer 189

A

How well can demand be met

Answer 190

A

MR = AR because each extra unit sold brings the same revenue as all the others

Answer 191

A

MR is twice as steep as MR

Answer 192

A

is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced. <img></img>

Answer 193

A

Monopolies: high prices redue consumer surplus - Price discrimination - Creating a more inelastic demand

Answer 194

A

Consumer surplus increases

Answer 195

A

Consumer surplus decreases

Answer 196

A

Producer surplus increases

Answer 197

A

Producer surplus decreases

Answer 198

A

By shading the region P1,F,E,Pe <img></img>

Answer 199

A

By shading the region P1,Y,Z,Pe <img></img>

Answer 200

A

When the demand for a good or service isperfectly elastic, consumer surplus is zero because the price that people pay matches exactly what they are willing to pay.

Answer 201

A

When the price mechanism leads to a misallocation of resources. - This means the price mechanism leads to a price and quantity that isnt best for society.

Answer 202

A

<img></img> M(^2)PIIE

Answer 203

A

A complete market failure occurs when a market simply does not supply products at all and we end up with missing products e.g. streetlights - A partial market failure occurs when a market supplies a good, but at the wrong quantity and/or the wrong price e.g. education

Answer 204

A

They are goods that are provided by the government - The are non-excludable & non-rival

Answer 205

A

You cannot exclude or stop someone from consuming a good - e.g. if I pay to use a streetlight, I cant stop someone walking behind me from using it aswell

Answer 206

A

The quanitiy of the good does not diminish apon consupmtion - e.g. if I pay to use a beach, it doesnt reduce the quantity available to others

Answer 207

A

Since consumers are all waiting for someone to buy the public good so they can use it for free, nobody actually demands the goods, so producers dont supply them as they wont make any profit - This could lead to a complete market failure as the market would not provide the public good

Answer 208

A

Public goods that show some characteristics of privates goods

Answer 209

A

Roads can be non-excludable, but if toll booths are put in making people pay to use the roads they can be excludable - If there is alot of traffic on a road it can become rival as the road has been used by the other drivers

Answer 210

A

Roads - Parks - Beaches

Answer 211

A

Private producers will act according to their self interest and unsutainably keep exploiting common access resources, leading to a depletion of that resource

Answer 212

A

Natural resources for which no private ownership has been established

Answer 213

A

For example in the 1960’s English and French fishermen would travel to the east coast of canada to fish for cod. Since they couldnt be stopped and fish were reproducing faster than they were fishing the fish could be considered as non-excludable non-rival goods. - Then when the American and Canadians developed new boats that allowed them to carry more fish, the amount of fish they caught was greater than the rate that the fish were reproducing - Today there is only 1% of the total cod that there was in the 70’s

Answer 214

A

Lack of competition + no profit motive means poor quality of services e.g. bin collectors, potholes in roads - If the government are the only providers this reduces choice and quanitity, which can result in productive, allocative and dynamic inefficiency leading to government failure - Vast opportunity cost the government suffer - Lack of profit motive can lead to X-ineffiecny and diseconomies of scale - In some cases, might be effienent for the government to fund but the private sector toprovide certain public goods eg. prisons

Answer 215

A

Government can provide goods on a much larger scale compared to the private sector + they have the lowest borrowing rates, which can allow them to gain economies of scale benefits and achieve productive efficiency. Lower long run cost per user - They make sure that essential public goods such as healthcare and education are provided as they provide positive externalities. The free market may struggle to provide these goods due to the free rider problem leading to a market failure - Lack of pofit motive makes public goods affordable- this is important for equity - Helps develop long term growth and economic development through the provision of infastructure

Answer 216

A

Costs which affect third-parties outside the price mechanism

Answer 217

A

A negative affect on a third party as a result of consuming a good

Answer 218

A

A negative affect on a third party as a result of producing a good

Answer 219

A

Its because the demand curve tells you the highest a consumer would be willing and able to pay for a good and that price is equal to MB since you wouldnt pay more than the benefit you get from something

Answer 220

A

It because the supply curve tells you the lowest price a producer would be willing and able to supply a good for, and that lowest price is equal to marginal cost since you woudnt sell a good for less than what is cost to produce

Answer 221

A

The cost experienced by the whole of society Social costs = Private costs + External cost

Answer 222

A

The benefits experienced by society as a whole Social benefits = Private benefits + External benefits

Answer 223

A

Net welfare = Social benefits - Social costs

Answer 224

A

Answer 225

A

On the left external costs are the same for each unit produced On the right external costs are increasing for each unit produed

Answer 226

A

Socially effecient equilibrium

Answer 227

A

Answer 228

A

Completley ban certain goods that have high external costs e.g. class A drugs, guns - Reduce consumption of goods by having legal ages e.g. alchol, smoking - Reduce production of goods if they do not meet certain criteria e.g. cars

Answer 229

A

Benefits which affect third parties outside the price mechanism

Answer 230

A

Benefits to a third party as a result of a consumption of a good

Answer 231

A

Benefits to a third party as a result of the production of a good

Answer 232

A

Answer 233

A

Answer 234

A

Merit goods are goods which areunderconsumedbecause of eitherpositiveexternalities orinformation gap.

Answer 235

A

Demerit goods are goods which areoverconsumed or over-consumedbecause of eithernegativeexternalities orinformation gap.

Answer 236

A

Incomplete information (Overconsumption and underconsumption) - Asymmetric information

Answer 237

A

Incomplete information is when someone doesn’t have full information about the benefits or costs of their decisions.

Answer 238

A

Consumers will be unaware of the full costs that consuming certain goods may have e.g. smoking, alchol, fizzy drinks

Answer 239

A

Consumers will be unaware of the full benefits that consuming certain goods may have e.g. education, healthy food

Answer 240

A

When one party knows more than the other in a transaction

Answer 241

A

All parties know as much as eachother in a transaction

Answer 242

A

If one knows more than the other in a transaction, they can easily be exploited, leading to a misallocation of their resources

Answer 243

A

Used car markets - Used phones - Private healthcare

Answer 244

A

Monopolies charge higher prices and produce lower quantities, exploiting consumers and leading to a misallocation of resources

Answer 245

A

Since monopolies make long run supernormal profits, they can reinvest into R&D and new tech. If this outways the high prices consumers pay in the short run there will be no marlet failure.

Answer 246

A

Occupational immobility is when workers cant move between different jobs because they lack the skills needed - Occupational immobility leads to structual unemployment, which can cause a labour market failure

Answer 247

A

Subsidising education and apprentiships

Answer 248

A

Geographical immobility is whenwokersstruggle to move to theareawhere the jobs are located. - Without government intervention it can lead to unemployment, a labour market failure

Answer 249

A

Relocation subsidies - Improving transport

Answer 250

A

Imposition of rules by the government backed by penalties that are intended to modify the behaviour of economic agents

Answer 251

A

The interaction of supply and demand to determine prices.

Answer 252

A

Signalling - Incentivising - Rationing

Answer 253

A

1) Signals are sent to producers that their prices are too high/low 2) There are incentives to increase/decrease supply depending on if there is excess demand/supply 3) This increase/decrease in supply will ration away excess demad/supply taking us back to equilibrium

Answer 254

A

Can result in allocative effeciency as producers are supplying what consumers demand - Can opperate without the cost of people to regulate it - Prices are kept low as resources are used as effeciently as possible

Answer 255

A

Under provision of public goods - Inequality in incomes and wealth as only those with purchasing power benefit from the price mechanism *add to this

Answer 256

A

The Competition and Markets Authority is a non-ministerial government department, responsible for strengthening business competition and preventing and reducing anti-competitive activities.

Answer 257

A

Merger policy - Price regulation - Profit regulation - Performance targets and quality standards

Answer 258

A

When the CMA block merging that might give firms too much market power - The CMA will carry out an investigation if a firm merging gives 25% or more market share or £70 Million in revenue. They will only be blocked from mergeing if they think they will negatively harm consumers

Answer 259

A

A limit to how much firms can increase their prices - RPI + K & RPI - X

Answer 260

A

RPI + K allows for firms to increase their prices by the rate of inflation + k which is an additional amount so they can increase their supernormal profits - RPI - X allows for firms to increase their prices by the rate of inflation - x which is used to punish firms if they think they can be more effecient

Answer 261

A

When regulators begin to favour the companies that they are regulating e.g. setting quality standards too low or allowing firms to increase prices by too much

Answer 262

A

When the government can take 100% of a firms profit in taxes after they reach a certain profit limit - This can encourage firms to reinvest in new capital since then they cannot be taxed

Answer 263

A

Performance targets include, ScotRail, who have the performance target of 91.3% of its trains running on time and the NHS, each hospital has the performance target of responding to accident and emergency patients in less than 4 hours. - The Food Standards Agency (FSA) give out a quality standard as do the British Standards Institute (BSI) (childrens toys).

Answer 264

A

Deregulation - Privitisation - Helping small firms grow - Stopping anti competitive practises

Answer 265

A

When regulation are removed they can lower barries to entry. This can lead to more firms entering the market which forces existing firms to lower prices, improve customer services and increase effeciency in order to survive - By privitising firms the government create more competiton as now there is incentive form firms to make profit, forcing them to be effecient

Answer 266

A

Competitive tendering is when the government outsources specific job contracts to the private sector. - Private sector firms bid to win the contract, by offering the best deal - the highest quality for the lowest cost. The government then chooses the firm which offers the best value for money - and awards them the contract!

Answer 267

A

Predatory pricing, when firms charge aggresivly below AVC to cut their competiton out of the market - Vertical intergration (forwards or backwards) is when firms take over other firms at different stages of the supply chain of the same product. By firms doing this they can create barriers to entry whereby other firms may struggle to access suppliers or retailers - Price collusion, when 2 or more firms agree to restrict competiton

Answer 268

A

Access to loans - R&D tax breaks - Subsidies

Answer 269

A

The transfer of the ownership of a firm from the public sector to the private sector

Answer 270

A

Government revenue from selling firms - Increased competiton means improved efficiency and reduces x-inefefficiency - Competiton may result in lower prices for consumers

Answer 271

A

Natural monopolies: Sometimes it makes sense for one firm to be the sole supplier of a good. Privitising these types of firms can lead to undesired competition and wasteful duplication of resources - Government lose out on potential dividends since most privitised firms are often profitable - Regulation to stop private monopolies

Answer 272

A

The type of industry: healthcare education VS Telecoms - Quality of regulation - If the market is contestable and competitive

Answer 273

A

The process of taking assets from private to public ownership.

Answer 274

A

Greater economies of scale potential since the government can produce more output than the private sector, which can lead to productive effeciency - Public sector is more likely to focus on welfare and provision of services - Less likely to be market failures that arise from externalties

Answer 275

A

Lack of supernoramal profits + Higher prices due to low competiton - Complacent and wasteful production = X-ineffeciency - Expensive to run state companies and therfore there is a burden on tax payers - Moral Hazard

Answer 276

A

Moral hazard is the idea that when someone pays for you problems your likely to take less care to avoid those problems - Politicians who make the decisions to nationalise firms will not suffer the burden if something goes wrong, taxpayers will

Answer 277

A

Are PPPs (public private partnerships) or competitve tendering better alternatives - If there is good regulation of private sector industries - Level of competition: Nationalisation may not be needed if there is high levels of competition

Answer 278

A

Reduced barriers to entry mean more competition is promoted = more choice for consumers = allocative effeciency - Higher incentive to minimise cost with more competition created, which leads to productive and X effeceincy

Answer 279

A

If there is a natural monopoly then deregualtion allows for more firms to enter the market which can lead to a loss of the natural monopoly, increasing average costs and leading to productive ineffeciency - Formation of oligopolies and local monopolies

Answer 280

A

Short run VS Long run outcomes: If deregulation leads to local monopolies and oligopolies then in the long run this reduces contestability - Just because legal barriers to entry are removed doesnt always make a market more contestable > consider strategic and technical barriers - Levels of regulation on anti competitive behaviour

Answer 281

A

Government failure is when the government intervenes to correct a market failure but makes the allocation of resources even worse than before

Answer 282

A

Law of unintended consequences - Information gaps - Distortion of the price mechanism - Administration cost

Answer 283

A

E.g. In the New York housing market maximum prices are set so that homes are affordable to consumers. However these lower prices reduces the incentive for producers to supply which lead to excess demand and a shortage of houses.

Answer 284

A

E.g in the 1970’s the EU introduced minimum prices on argicultural foods to incentivise farmers to produce more but this only lead to excess supply and a contraction in demand. This resulted in food being wasted and disposed of creating pollution and damaging agricultrual soils

Answer 285

A

Speed bumps: they intend to slow traffic down but ambulance need to be places fast. It is estimated for every person that is save by a speed bump 85 die as a result of ambulances not being quick enough - Illegalising goods creates black markets

Answer 286

A

All government interventions have some unintended consequences

Answer 287

A

e.g. Rio Olympics; the government run £1.6 Billion over because they didnt have full information about the costs - In 2002 the government wanted to make an NHS online database to improve effeciency, but 9 years later they didnt complete it because they lacked full information on the costs and technology. They ended up scrapping the project altogether wasting £11 billion in tax payers money

Answer 288

A

When the government impose laws and policies there are also costs of regulating. If these costs exceed the benefits of government intervention this can lead to government failure e.g. £21 Billion makes up the NHS’s admin costs and it is estimated that 750 extra lives could be save every month if they could afford more medical supplies, despite a £150 billion budget

Answer 289

A

Encourages black markets and law breaking - Reduces innovation and dynamic effeciency - Regulatory costs

Answer 290

A

Quick to implement and can reduce negative externalities e.g smoking bans, age limits on drinking - Effective for inelastic goods - Government regulations are generally imposed to benefit the greater society = allocative effeciency and welfare gains

Answer 291

A

Increase the price of goods that may have negative externalities in consumption. Demand will contract as a result <img></img>

Answer 292

A

Not effective if demand is price inelastic - Consumers may turn to black markets

Answer 293

A

Does it affect everybody equally (inequitable/regressive) - How effective is the minimum price (50p per unit of alchol)

Answer 294

A

Reduces the price of goods which have positive externalities in consumption. This causes demand to extend and supply to contract <img></img>

Answer 295

A

Creates a shortage of goods with excess demand = government failure - Black markets where consumers may be exploited by paying higher prices - Low prices may mean lower quality goods - Enforcement costs

Answer 296

A

Can be a cause for merit goods to become cheaper - Stops monopolies from exploiting consumers - Increase in consumer surplus

Answer 297

A

Are alternatives better? (Subsidies) - Are they going to impact everyone equally (equitable)

Answer 298

A

Not effective for price inelastic goods - Regressive on lower income earning families - Black markets/Tax evasion

Answer 299

A

Often on everyday goods, which can significantly increase government revenue - Increases the price of demerit goods, which discourages their consumption - Encourages firms to change their behaviour e.g. making less sugary drinks

Answer 300

A

Go to the new equilibrium, find the vertical distance and create a box from there <img></img>

Answer 301

A

Specific Tax = Parallel shift Ad Valorem Tax = Pivotal shift <img></img>

Answer 302

A

High cost which means there is a huge opportunity cost - Moral hazard: firms might get complacent and wasteful

Answer 303

A

Reduces cost of merit goods = Increases welfare in society - Subsidies encourage investment = diverse products for consumers - Prices are kept low for consumers

Answer 304

A

1) The governemt sets a cap of how much pollution can be emmited in a given year 2) Government allocate permits based on the size of firm (Larger firm = more permits) 3) Will distibute permits until 10% of permits remain, which are then auctioned of to other firms 4) A firm must now either become more eco friendly or buy permits of other firms

Answer 305

A

High costs of regulation - Pollution can be hard to measure = pollution cap may be wrong - Relocation of firms to countries with low pollution regulation

Answer 306

A

Incentives firms to reduce pollution (so they can potentially sell permits) - Market based = effecient allcation of permits - Equitable for firms as it allows them to make choices

Answer 307

A

Answer 308

A

Answer 309

A

A single firm that has full control of the market

Answer 310

A

Pure monopoly = A theoretical extreme whereby 1 firm has 100% market share Legal monopoly = When a firm has 25% or more market share on there own and has the ‘power’ to act like a monopoly

Answer 311

A

Firms profit maximise - High barriers to entry/exit - Imperfect information - Differentiated product - Firms are price makers<div>(Delete)</div>

Answer 312

A

Answer 313

A

Productively inefficeint Allocatively inefficeint X-inefficeint Dynamically efficient

Answer 314

A

Allocative inefficiency: consumers have less choice with monopoly and pay high prices leading to reduced consumer surplus and a deadweight welfare loss - Productive inefficiency: they do not produce where MC=AC either due to a lack of competitive drive meaning they dont necessarily have to, or diseconomies of scale whereby a monopoly grows too large - X-inefficiency: complacent and wasteful production due to a lack of competitive drive - Inequalities that arise in neccesity markets

Answer 315

A

Dynamic efficiency = supernormal profits made in the long run which can be reinvested into r&d and new tech which can bring about benefits for consumers - Greater economies of scale potential as monopolies are larger in size and as result we may see lower prices than in competitve outcomes - Natural monopoly = If natural monopoly markets are regulated then they give society more desirable outcomes than if there was competition since it makes sence for that firm to dominate the market

Answer 316

A

Does dynamic efficiency really hold in the real world: profits may be spent by owners, payed to shared holders and workers rather than reinvested - Objective of the firm = The theory states that the monopoly will profit maximise but what if they have other objectives that intend to bring about welfare in society - Type of good/service = Necessity goods will have more extreme consequences if sold by a monopolist

Answer 317

A

Answer 318

A

Answer 319

A

a natural monopoly is when it is most efficient for 1 firm to be in the market e.g. TFL have 100% market share of London transport

Answer 320

A

High sunk costs (for TFL estimated £129 billion pounds) - Huge economies of scale + first movers advantage Any firms entering these markets would create undesired competition and a wasteful duplication of scare resources

Answer 321

A

Answer 322

A

When welfare in society is maximised MC = AR

Answer 323

A

For a given level of output a firm is opperating above its average cost curve

Answer 324

A

When firms make long run supernormal profits to invest in research and development

Answer 325

A

Any patents, copyrights or trademarks that stop new firms using ideas from an incumbent firm

Answer 326

A

Costs which cannot be recovered when a firms leaves the market

Answer 327

A

New smaller firms will be unable to compete with larger firms with economies of scale advantages as they will have much lower costs

Answer 328

A

New firms will unable to make sales as consumers will stay loyal to incumbent firms

Answer 329

A

LEBAS <img></img>

Answer 330

A

Contestable markets are markets where there are potential threats of competition (may not be actual competition)

Answer 331

A

This occurs when new firm hit the market by undercutting incumbent firms and stealing their supernormal profits Then the incumbent firm will set it price to AC so only normal profit is made causing the new firm to ‘run’ and leave the market

Answer 332

A

High redundancy costs = costs payed to workers as a reuslt of shutting down - Sunk costs - Penalties for leaving contracts early

Answer 333

A

By looking at these types of markets it helps us undertsand what is wrong with real life markets when they have undesirable outcomes

Answer 334

A

0 Barriers to entry/exit - Firm is a profit maximiser - Many buyers and sellers (infinite) - Perfect information of market conditions - Homogenous goods

Answer 335

A

Answer 336

A

Supernormal profits signal to firms that they should enter the market and since there are no barriers to entry and exit they will do so until only normal profits are made

Answer 337

A

Answer 338

A

Static efficiency (productive and allocative) - X-efficiency - Dynamically inefficient

Answer 339

A

Low barriers to entry /exit - Large pool of potential entrants to the market - Good information of market conditions - Incumbent firms are subject to hit and run competition

Answer 340

A

Lowers barriers to entry/exit e.g. businesses moving online reducing start up costs - Increases the pool of potential entrants: firms can created new products and services disrupting current markets (uber, air bnb) - Increased information : this allows for firms to learn about costs and market conditions

Answer 341

A

By reducing price they take away any incentive for new firms to join the market

Answer 342

A

Movement towards static efficiency + x-inefficiency as contestable markets move firms towards competitve outcomes - Creation of jobs

Answer 343

A

Cost cutting in dangerous areas e.g. environmental standards, health and safety, wages - Creative destruction: new firms destroy old markets due to advancements in technology leading to job loss - Anti competitve strategies may aries reducing contestability

Answer 344

A

How long is the market contestable for? - Role of technology (will it be used for good or bad, say to collect data on consumers which allows firms to practise price discrimination) - Regulation

Answer 345

A

Dominated by a few large firms (3-7) High barriers to entry/exit Interdependence Non-Price competition Differentiated goods (Similar but slightly different)

Answer 346

A

Advertisements - R&D

Answer 347

A

When 2 or more firms agree to limit competition

Answer 348

A

Overt collusion is when 2 firms formally agree to limit competition e.g. contracts, spoken agreements and happens as a result of price agreements Tacit collusion is when firms limit competition without directly stating or formally agreeing and happens as a result of price leadership

Answer 349

A

Collusion generally leads to higher prices which reduce consumer surplus and negatively harm consumers

Answer 350

A

Price wars = when firms try to undercut each other with lower prices to steal the other firms’ consumers - Predatory pricing = charging way below AVC to force other firms out of the market - Limit pricing = when an incumbent firm sets prices so that other firms do not enter the market

Answer 351

A

Advertising - Loyalty Cards (Tesco clubcard, Nandos Card) - Branding - Quality

Answer 352

A

Decisions by one firm in the industry impact all of the other firms. Since it is hard topredictthe decisions of other firms, this can lead to considerableuncertainty.

Answer 353

A

Non-Collusive = Will comptete with eachother - Collusive = Will agree to restrict competition

Answer 354

A

Collusion is illegal whereas cooperation is allowed

Answer 355

A

On the top section demand in elastic. This is because if a firm raises is price demand will fall sigificatlly as consumers will switch to cheaper substitutes. - On the bottom section demand is inelastic. This is because if a firm lowers its price competitors will also match them hence demand doesnt change that much <img></img>

Answer 356

A

Answer 357

A

Answer 358

A

Adding up the market share of ‘n’ number of firms.

Answer 359

A

Cooperation in oligopolies may lead to improvements in industry standards - Oligopolies make supernormal profits which may mean they reinvest in R&D which can yield positive externalities

Answer 360

A

The kinked demand suggests that there is high prices and low output which could lead to a misallocation of resources - When firms collude it may lead to a loss of consumers welfare since prices are raised and output is reduced - The absence of competition could mean that there is a loss of efficiency gains

Answer 361

A

Natural barriers are naturally present and cannot be circumvented e.g. EoS (MES), start up costs, sunk costs Artificial barries are created by the incumbent firm in order to reduce competition into the market e.g. predatory pricing, limit pricing vertical intergration

Answer 362

A

Many small buyers and sellers - Slightly differentiated goods (some price making power) - Good information of market conditions - Low Barriers to entry/exit

Answer 363

A

In the long run, with low barriers to entry and firm attracted by supernormal profits, they will enter the market and compete the profits away until there is only normal profit to be made <img></img>

Answer 364

A

Models a more realistic market compared to perfect competition - Consumers get a wide variety of choice + competition drives prices low - Short run supernormal profits may be enough to reinvest and bring small dynamic effeciency gains

Answer 365

A

In the long run no efficiency gains are achieved

Answer 366

A

Although the theory states that allocative effeciency is not achieved, high levels of competition could lead to lower prices which can increase consumer surplus - Although dynamic effeciency is not achieved in the long run, high levels of competition may mean that normal profits are reinvested in order to survive

Answer 367

A

Efficiency considers how well we use inputs to achieve outputs.

Answer 368

A

Reinvest - Dividends for shareholders - Reward for entreprenership

Answer 369

A

Consumers - Workers - Managers/CEO’s - Shareholders

Answer 370

A

Lack of knowledge of MR=MC - To avoid scrutiny by regulators, market authorities - Key stakeholder is harmed as a result

Answer 371

A

Sacrifising profit to satisfy as many key stakeholders as possible.

Answer 372

A

Revenue Max - Sales Max - Profit satisficing

Answer 373

A

Economies of scale potential is greater than at the profit max quantity - Increase market share, since market share is measured by revenue - Principle agent problem

Answer 374

A

As firms grow bigger, owners will sell shares to raise finances but in turn end up loosing majority of ownership in their company. - This can lead to the principle agent problem when the agent (e.g. the manager who runs andcontrolsthe business) pursues different objectives to the principal (e.g. the shareholders whoownthe business) - Generally shareholders will want to profit max while owners will want to revenue/sales max for bigger bonuses and to control a larger firm

Answer 375

A

AC=AR is when sales max occurs without making losses - Limit pricing / Loss leader - Economies of scale - Principle agent problem - Flood the market (develop loyalty then raise prices)

Answer 376

A

When a firm charges different prices to different consumers for an identical good/service with no differences in costs of production

Answer 377

A

Price making ability (monopoly power) - Information to seperate the market into elastic and inelastic consumers - Prevention of resales (market seepage)

Answer 378

A

1st = When consumers are charged the exact price they are willing to pay, and all consumer surplus is converted into monopoly profit eg at an auction 2nd = This involves charging different prices depending upon the choices of consumer. For example quantity, time period, collecting coupons eg. family discounts at theme parks 3rd = When the market is segmented into elastic and inelastic consumers

Answer 379

A

Answer 380

A

Answer 381

A

Answer 382

A

Allocative inefficiency -Strengthens the monopoly power of firms - Inequalities -It might cost a firm to divide a market, which might limit the profit that they can make in the long term - Anti competitve practises

Answer 383

A

Dynamic efficiency- is achieved as firms can make more profit - Economies of scale- as firm can expand market - Some consumers benefit (2nd 3rd degree)- Cross subsidisation

Answer 384

A

This is the point where AP is maximised - This is also productive efficiency

Answer 385

A

How much extra revenue an extra worker will bring to a firm MR x MP (MPP)

Answer 386

A

A rational profit maximising firm will demand labour based on how high MRP is

Answer 387

A

In goods markets, firms supply goods and we demand goods from firms - In labour markets, we supply labour, and firms demand our labour

Answer 388

A

When wages go up people realise that they can make more money, so more people will be willing to work increasing the quantity supplied of labour

Answer 389

A

When there are higher wages firms will demand less labour at the same time more workers will be willing to supply their labour - This will lead to an excess supply of labour aka unemployment - For those unemployed they will have no choice but to accept lower wages so that they can remain in work - So wages will decrease, quantity supplied of labour will fall, quantity demand for labour will increase and the market will return to equilibrium

Answer 390

A

When wages are below equilibrium, there are less workers that are willing to work, but firms will be willing to hire more workers since wages are lower, leading to an excess demand of labour - For firms to hire workers, they must offer hire wages as a result - This will lead to higher wages, quantity demaded of labour will fall and quantity supplied will increase

Answer 391

A

How responsive demand for labour is to changes in wages

Answer 392

A

A small % change in wages will lead to a bigger % change in labour demand e.g. Mcdonalds til workers wanted higher wages they would significantly reduce QD, and replace them with self service machines

Answer 393

A

Any % change in wages would lead to a smaller % change in labour demanded e.g. If superstar football players demand higher wages, teams need these players so they wont be very responsive in reducing demand

Answer 394

A

Think ‘SECT’ 1) Substitutes (labour & capital) 2) PED for the product 3) % Of total Cost 4) Time

Answer 395

A

For example, if it easy to substitute or replace workers when there wages go up, demand for labour will be elastic But if it is harder then demand for labour will be inelastic

Answer 396

A

When wages make up a small % of a firms total cost, demand for labour will be more inelastic e.g. in a big car company, where machines and parts make up most of the costs, if wages went up by alot firms wouldnt care because they make up a small % of total costs When wages make up a lager % of a firms total cost demand for labour will become more elastic e.g. in a tutoring firm, tutors make up the majority of there costs, so if wages increased by alot, those firms would be significanlty effected since wages make up majority of there costs.

Answer 397

A

In the short run, there wont be enough time for a firm to find substitutes when wages increase, making there demand for labour inelastic In the long run there is enough time for a firm to find substitutes when wages increase, making demand for labour elastic

Answer 398

A

A large % increase in wages will lead to a smaller increase in quantity of labour supplied e.g. If there was a large increase in wages for heart surgeon, supply would only increase by a bit since it is so heart to become a heart sugeon

Answer 399

A

A % change in wages leads to a larger % increase in the quantity supplied e.g. if Mcdonalds increased wages there would be a significant increase in the quantity of labour supplied since it doesnt require much to work at Mcdonalds

Answer 400

A

Skills & Qualifications - Unemployment levels - Time

Answer 401

A

The more skills and qualifications you need the more inelastic the supply of labour is The less skills and qualifications you need the more elastic the supply of labour is

Answer 402

A

Higher unemployment means that when there is an increase in wages, there will be a greater % increase in the number of people willing and able to work since alot of people wont have jobs i.e elastic supply Lower unemployment means that when there is an increase in wages, there will be a smaller % increase in the number of people willing and able to work since most people will have jobs i.e inelastic supply

Answer 403

A

In the short run, there wont be enough time for workers to apply/and train for jobs at short notice, so if wages increased quantity supplied of labour wouldnt increase by alot i.e inelastic supply In the long runsupply will become elastic because there’s lots of time to apply and train for the job so if there is an increase in wages workers are likely to be more responsive

Answer 404

A

It shows us how many workers will be hired at a given wage rate, in a given period of time

Answer 405

A

Law of diminishing returns (Same reasons as MP)

Answer 406

A

1) In certain professions it may be harder to measure productivity, e.g. teachers because the output that a teacher produces isnt marketed (no numerical value so you cant work out MRP) 2) Self employed goes against the theory 3) MRP takes the assumption that labour markets are perfectly competitive, trade unions may bargain for higher wages, which has nothing to do with a workers MRP or monospsony with lower wages

Answer 407

A

Think ‘ PDPC’ - Change in the final price of the product labour is making - Change in demand for the for the final product - Change in labour productivity - Change in the price in capital

Answer 408

A

If the price increases, then a workers MRP is going to increase as a result, (this makes alot of assumptions), this will shift demand to the right

Answer 409

A

If there is an increase in the demand for a good or service, there will be a derived demand for labour, so demand for labour will shift to the right

Answer 410

A

An increase in labour productivity is going to increase the marginal revenue product of labour (Since MRP = MP x MR) so demand for labour will shift to the right

Answer 411

A

Since in the long run a firms factors are variable if the price of capital is lower than for labour, we may see less demand for labour (substitutes)

Answer 412

A

E.g. If demand for a good is inelastic and wages go up, they are not likely to cut there workforce significantly as they can pass the cost on to consumers If demand for a good is elastic and wages go up, they cant pass these costs on to consumers since this will cause TR to fall, so more workers may be fired i.e. reduced demand for labour

Answer 413

A

<img></img> - When wages rise from a low level, an individuals supply of labour increases since an individual is more willing to work at higher wages to improve there standard of living (+ income effect, + sub effect) - As wages rise, the opportunity cost of lesiure time rises, but individuals begin to reach a level of income that they are happy with, so num of hours worked reduces (- income effect) - When the curve bends back on itself, we assume at this point individuals have reached their target income, so even with higher wages they wont be willing to work more and give up leisure time.

Answer 414

A

Answer 415

A

Answer 416

A

We assume that people trained in a given profession but work elswhere + those retired, will enter into this market

Answer 417

A

Think ‘SOIND’ - Size of the working population - Overtime - Improvements in occupational mobility of labour - Non pecuniary benefits (fringe benefits, long holidays, employee discounts) - Different wages in substitute occupations

Answer 418

A

There are many potential workers and employers - Labour is homogenous - There is perfect information (workers know the wages, firms know how good workers are) - Firms are wage takes - No barriers to entry/exit

Answer 419

A

It gives us a bench mark to compare real world labour markets - If we dont get wage differntials in perfectly competitve labour markets, then we can learn that there must be things going wrong with real world labour markets

Answer 420

A

1) Labour is not homogenous (Different MRP, Different supplies of labour, Discrimination) 2) Labour is not perfectly mobile (Geographical, occupational, lack of information) 3) Non-monetary considerations (In perfectly competitive labour markets the assumption is that workers base the choice to work one wages alone) 4) Trade unions and supply restriction 5) Monopsonies and wage setting ability

Answer 421

A

The differences in wages between different groups of workers in similar occupations

Answer 422

A

The sole/dominant employer of labour in a given profession - e.g. Teachers, Nurses (UK) Mcdonalds, Walmart

Answer 423

A

Wage makers (ability to set there own wages) - Hire up to where MRP=MC(L) - Reduce employment & Wages

Answer 424

A

Answer 425

A

Although a monopsonist has wage making power, if it wants to change wages, its not just changing the wage for each additional worker, it for all the workers that came before This implies that the MC(L) will be greater than the AC(L)

Answer 426

A

Wages and Employment are significanlty reduced - Workers are payed a wage (Wm) much lower than there MRP

Answer 427

A

An organisation thats formed to represent the best interest of a group of workers, and bargain for higher wages

Answer 428

A

All the workers are part of 1 trade union, i.e, there are no other trade unions

Answer 429

A

<img></img> 1) The trade union will bargain for a higher wage, above the competitive wage 2) At that wage there is a limit to the number of workers happy with the wage rate, shown by the existing supply curve 3) This is because all the workers below that point would of already been happy with a wage below the TU wage since thats what they had been working for 4) Beyond that point the employer would have to raise wages in order to attract in more workers 5) Wages will rise and there will be excess supply of labour (unemployment)

Answer 430

A

They raise costs for firms - They increase unemployment, real wage unemployment

Answer 431

A

Although they make efficient labour market outcomes worse, for a monopsony labour market they could be making things better - Depends on the strength of the trade union (how large the union is) - The real world shows us that trade union strength is actually very limited

Answer 432

A

1970 trade union act: Closed shop trade unions are illegal, vote for strikes in secret, can only strike if 75% of the trade union agree - Restructuring of the UK economy: Movement away from large manufacturing jobs where people would work under 1 firm, to service sector jobs, which makes it alot harder to organise trade unions - Competitve pressures: Firms can reject trade union wages in order to keep their costs low and remain competitive

Answer 433

A

<img></img> 1) Trade unions will bargain for a wage above Wm 2) The monopsonist becomes a wage taker up until a limit, because there is a limit to the number of workers willing to work at that new wage rate 3) The supply curve will also become the MC(L) and AC(L) until that limit 4) At that limit the monopsony must increase wages to attract more workers. But the key is thats not just for the next worker its for every other worker that follows, so the MC(L) will revert back its shape 5) Employment and wages will increase as a result of this TU

Answer 434

A

An act first introduced in 1999 to stop firms setting wages so low that there workers couldnt afford a good standard of living For 23 and over it will increase in April 2024 to £11.44 an hour (from £10.18). This will account for a £1800 increase a year for 2.7 million workers.

Answer 435

A

Answer 436

A

Creates incentive for people to work - Fiscal benefit to the government (Reduced benefits payments + Tax revenue from people working) - Boost in morale > workers become more productive - Improve inequality, reducing the gap between the rich and the poor

Answer 437

A

Can create unemployment (real wage unemployment) - Can cause cost-push inflation because of increased production cost - Unattractive to FDI if NNW is too high, since there is no point of outsourcing in the UK with higher costs - Can cause other pay groups to request higher wages, further increasing costs, and leading to wage push inflation

Answer 438

A

Elasticities of demand/supply for labour: the more elastic the greater the impact of unemployment from a minimum wage, the more inelastic the lesser the effect - Is it high enough to incentivise those on benefits to join the labour force Add to

Answer 439

A

The ability to change wages

Answer 440

A

In perfect competition have no choice but to profit maximise in order to survive in the market - A monopoly can choose any price and output between MR=MC and normal profit

Answer 441

A

In smaller firms, managers are generally the owners - As a result the day to day running of the firm is done by the owners seeking profit - But as a firm wishes to expand production, they will need to raise shares. - Firms will sell shares to raise funds and expand, but in the process the ownership gets diluted - As a result larger firms will become dependent on specialist managers who are employed to run the business on behlaf of the shareholders

Answer 442

A

The Minimum Efficient Scale (MES) is the level of production at which a firm achieves the lowest possible long-run average cost per unit of output. It is the point at which economies of scale are fully utilised, and any further increase in production would result in diseconomies of scale.

Answer 443

A

Amazon aimed to increase their market share in the e-reader market, by trying to sell as many Kindles as possible. They did this at a loss in the short run, but they gained customer loyalty and now they are a leading e-reader producer.

Answer 444

A

In 2002/3 supermarkets such as Sainsbury’s and Asda colluded with diary supplies to raise the price of diary products in supermarkets. Fined a total of £116m. Prices of milk in supermarkets went up by three pence per pint of milk, but the income received by farmers did not go up. Tried to justify that higher prices were needed in order to prevent firms going out of business, as foot and mouth disease had lead to falling farm incomes

Answer 445

A

an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restrictingcompetition

Answer 446

A

Quebec maple syrup producers- regulates the production and marketing of maple syrup from Quebec. They control around 70% of world maple syrup production. <div>One of the most famous cartels in the world is OPEC who control the production of oil. In the 1970s, OPEC was able to triple the price of oil in response to events in the Middle East. They could do this because they controlled over 70% of the world’s oil supply.</div><div><a></a> </div>

Answer 447

A

Answer 448

A

Answer 449

A

Strikes have lead to a backdated pay rise of 5% from 2022-23, as well as job security guarantees. However talks with the RMT over future pay deals will continue. The union claims strikes in 2023 cost the economy £5bn, with the the lesuire sector taking the greatest impact from the loss of sales. £700m revenue lost from the rail industry

Answer 450

A

<a><img></img></a> Employers peceive the discriminated group to have a lower MRP than the favoured group

Answer 451

A

<ol><li>Long-term investment in education and training to prepare people better for the labour market.</li><li>Structural reforms to promote stronger and more sustainable economic growth which can boost demand for workers, creating a more competitive environment that forces managers to drop discriminatory hiring and promotion practices.</li><li>Specific anti-discrimination legislation backed up by effective enforcement.</li><li>Enforcement agencies should be empowered, even in the absence of individual complaints, to investigate companies and sanction employers when they find evidence of discrimination</li></ol>

Answer 452

A

<ul><li>The Equality Act 2010The Equality Act brought together different acts outlawing different types of discrimination – age, sex, disability, religion, sexual orientation. </li></ul>

<div>In 2017, the UK government passed a law which made companies of more than 250 employers publish data on their gender pay gap. The government hoped that public pressure may nudge firms to push more women into top jobs.</div>

Answer 453

A

<h3>The market can fail to end discrimination if: </h3>

<ul><li>Government legislation enforces discrimination (apartheid laws US, South Africa)</li><li>Discrimination occurs amongst consumers too.</li><li>If firms have monopoly power – despite higher costs of discrimination, barriers to entry prevent new non-discriminatory firms from entering the market.</li><li>Discrimination – pre-labour market. One major cause of wage differentials is not discrimination by employers but different life chances and education of people entering the labour market. If black-Americans have fewer qualifications than average, economic theory would predict that even with non-discriminatory employers, average wages would be lower for certain groups.</li></ul>

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