Micro 1 Flashcards
Factors affecting supply (7)
Number of producers Production cost Population size Efficiency of labour Government subsidies Government taxes producers, the good/service Productivity of firms/ technology
Factors affecting PES (4)
Time to produce supply
Spare production capacity available
Substitution possibilities
Stocks available to meet changes in demand (ability to store when price falls)
Market system definition
Goods and services are freely exchanged through a market without the need for government intervention
Merits of the market systems (5)
Equilibrium price established by demand and supply in the market (buyers and sellers)
Easily determine scarce allocation of resources
Consumer sovereignty (price mechanism signals preferences of consumers)
Profits encourage firms to meet consumer demand - able to allocate resources efficiently
Resources and privately owned by the market system
Market failure definition
When the market forces of demand and supply leads to an inefficient allocation of resources, external costs and social costs being greater that social benefits
Examples of market failure (6)
Negative externalities (social costs > private costs)
Merits goods are under provided and under consumed
Demerit goods and over produced and over consumed
Loss of productive efficiency
Private firms can not profitably supply goods/ services
Monopolies under produce but have high prices
Public goods definition
Goods which the market would not provide because consumers will not be willing to pay so the government has to provide due to the free rider problem
Benefits of trade unions of workers (2)
Can bargain for better pay/ overtime
Union has more power that one individual worker and can use the threat of industrial action to support higher wage demands
Better working conditions e.g. hours, health and safety, sick pay, pensions
Unions negotiate and have more power than one individual worker
Can use threat of industrial action to support improving working conditions
Disadvantages of trade unions on workers (3)
Workers pay to be a member so reduces spending power
Unions may bring workers on strike so lose income and can make firm take retaliatory action and lose promotions
Prolonged strike action can cause firm to go out of business causing unemployment which decreases living standards
Benefits of trade unions for firms (5)
May encourage more workers to apply for jobs as they expect better working conditions
Promotes training which increases productivity and lowers costs
Unions reduce costs for employees negotiating with employees
Communication improves as information (e.g. new working practises) can be spread more quickly
Reduces conflict as workers’ problems can be managed and resolved
Disadvantages of trade unions for firms (3)
Unions negotiate and can increase wages for workers causing an increase in costs of production which reduces competitiveness
Reduces flexibility as members only undertake jobs in their job descriptions so do not work outside standard hours
May take industrial action which disrupts production causing loss of customers, output, revenue and profits
Advantages of trade unions for economy (3)
Negotiate wages and working conditions with employers in behalf of employees so are able to defend employee rights and jobs
Higher wages means more tax revenue from income
Productivity deals to increase wage and afford them better by increasing output
Disadvantages of trade unions for economy (5)
Creates unemployment (unable to afford more workers)
Reduces competitiveness as cost of production increases
Wages inflation causes general inflation
Loss of productivity and strike action reduces output
Government has to pay for higher wages
