Steedsy Theme 3

Question 1

Define marginal revenue product of labour

Answer 1

The extra revenue generated when an additional worker is employed

Question 2

How do you calculate marginal revenue product

Answer 2

Output x price

Question 3

At what point is it profit maximisation on a labour market diagram

Answer 3

Marginal cost = marginal revenue
Always employ at mc=mr

Question 4

Evaluate marginal revenue product

Answer 4

Problems:
Measuring labour efficiency can be difficult
Harder to measure productivity in consultancy and education
Collaborative work is difficult to measure individual workers

Question 5

What are the factors influencing the demand for labour?

Answer 5

The wage rate -Higher wage means lower demand for labour
The demand for the products
Productivity of labour, more productive, greater demand
Profitability of firms can afford to get more workers
Substitutes, machinery replaces demand for workers
The number of ‘buyers’ of labour

Question 6

Why is labour supply and demand so elastic for low skilled and low paid jobs

Answer 6

Labour supply is highly elastic as a small change in wage would cause a large increase in workers offering themselves for work
Labour demand is highly elastic because a small change in wage will cause a large decrease in demand, because there are so many employed, so it would cost a lot more for the business

Question 7

Why is labour supply and demand so inelastic for high paid occupations?

Answer 7

Neighbour supplies in elastic due to a smaller amount of people who can work it as requires experience and training as it’s a high skilled job
Labour demand is in elastic as they are needed as they are valued highly so deserve the pay

Question 8

Define the supply of labour

Answer 8

The labour supply is defined as the number of workers, willing and able to work multiplied by the hours they are willing and able to work

Question 9

What are factors influencing the supply of labour?

Answer 9

Wage rate
The size of the working population
Migration
Peoples preferences for work
Net advantages of work e.g holiday entitlement, job security, promotion opportunities
Working leisure
Barriers to entry - strict requirements to qualifications will make labour supply less
Labour subsidies

Question 10

What is the cause of the backward bending supply curve?

Answer 10

A situation in which as real wages increase beyond a certain level, people will substitute leisure for paid work and so higher wages lead to a decrease in the labour supply and so less labour time being offered for sale.

Question 11

What is the substitution effect? (to do with the backward, bending supply curve.)

Answer 11

A higher wage makes work more attractive than leisure, as wage goes up you work longer hours

Question 12

What is the income effect? (to do with a backward, bending supply curve)

Answer 12

A higher wage means workers can achieve a target income by working fewer hours
-ve effect : as wage goes up, you work less as you must meet you target income
+ve effect: as wage goes up, income goes up

Question 13

Benefits of minimum wage

Answer 13

Reduce poverty
Increases productivity
Increased investment
Increase the incentives to accept a job

Question 14

Problems of the minimum wage

Answer 14

More unemployment
Reduces investment by firms as higher costs
Cost push inflation

Question 15

What is a monopsony in the labour market?

Answer 15

A monopoly occurs when a firm has market power in employing factors of production. A monopsony means there is one buyer and many sellers.

Question 16

What happens when you apply a minimum wage to a monopsony?

Answer 16

In a monopsony, a minimum wage can increase wages without causing unemployment. It also won’t increase employment as the wage is already so low

Question 17

What are the two main factors influencing the mobility of labour?

Answer 17

Geographical mobility - how easy it is for a worker to move between different regions and countries to seek new work
Occupational mobility - how easy it is, for a worker to move from one occupation to another.

Question 18

Evaluate the impact of geographical mobility

Answer 18

Depends on family, education, house prices, cost of living, immigration policy

Question 19

Factors that impact occupational mobility

Answer 19

Training
Skill level / qualifications
Experience

Question 20

What has the government done to reduce geographic immobility?

Answer 20

Support transport links
Working from home
Housing subsidies
Reducing construction for visas

Question 21

What has the government done to reduce occupational immobility?

Answer 21

Training programs
Laws in education (education till you’re 18)
Apprenticeships and universities
Labour market regulations

Question 22

What is the concentration ratio?

Answer 22

The percentage of market share taken up by the largest firms

Question 23

What is subnormal profit?

Answer 23

This is profit which is less than normal- profit < average costs

Question 24

What is supernormal profit?

Answer 24

Profit achieved in excess of normal profit

Question 25

What are the characteristics of perfect competition?

Answer 25

Large number of firms
Products are identical
Freedom of entry and exit of the industry
Firms have no control over the price they charge
Each producer has a lower output
Consumers and producers have perfect knowledge about the market

Question 26

How does wheat farming illustrate perfect competition

Answer 26

• one producer cannot influence the price, many sellers, homogenous products. However there will be a difference in quality so not totally perfect competition

Question 27

Why is monopsonistic competition good and bad

Answer 27

+ innovation
+economies of scale
- Low price
- Limited output
- No strive for quality
- eventually diseconomies of scale

Question 28

Characteristics of a pure monopoly

Answer 28

Firms are price setters (control over price)
Huge barriers to entry and exit
One seller, many buyers
Not homogenous products
Imperfect information

Question 29

What are the three ways, monopolies form?

Answer 29

Merger or take over
Organic growth
Through acquired patent

Question 30

Why is Apple regarded as a monopoly?

Answer 30

49% market share
Huge barriers to entry : substantial capital, infrastructure costs, strategic partnerships, compliance with industry regulations.
Deals with device makers so costs are lower which makes it harder for competitors
Not homogeneous products as there is a difference in camera quality
Price discrimination, so they are price setters

Question 31

Why is Google an example of monopolistic competition?

Answer 31

90% market share
Huge barriers to entry : technological infrastructure, huge start-up costs
2 billion users, one seller many buyers
Not homogeneous as they have different features e.g image search
Price setters : freemium pricing (free, but you have to pay if you want additional services)

Question 32

What is productive efficiency and where is it on a monopolistic competition diagram

Answer 32

Producing the largest number of products and services based on the resources available (at the bottom of the AC curve) at the lowest cost

Question 33

What is allocative efficiency and where would you find it on the monopoly diagram?

Answer 33

Allocative efficiency is a characteristic of a market that performs efficiently by producing the number of goods and services that most closely resemble the demand for those goods and services.
When resources are distributed optimally.
It is when price = MC (go MC = MR first then up to the MC curve). If not operating at this point on the graph then they are inefficient

Question 34

What is dynamic efficiency?

Answer 34

Involves adapting and innovating to maintain efficiency in the face of changing market conditions, consumer preferences and technology.
It will be dynamically efficient if the AC curve moves down

Question 35

What is X inefficiency?

Answer 35

A firms inability to fully utilise its resources, resulting in higher production costs than required.

Question 36

What is X inefficiency?

Answer 36

A firms inability to fully utilise its resources, resulting in higher production costs than required. Higher costs so higher prices

Question 37

What efficiencies do monopolies have and don’t have

Answer 37

X inefficient
Productively inefficient
Allocatively inefficient
Dynamically efficient
Diseconomies of scale

Question 38

What is price discrimination?

Answer 38

Involves charging different prices to different groups for the same good

Question 39

What are the requirements for price discrimination to work?

Answer 39

Markets must have:
Different elasticities
Must be kept separate from each other
No resale
Must be an imperfect market

Question 40

Advantages to the producer of price discrimination

Answer 40

Greater revenue and greater profits
Greater investment due to greater revenue

Question 41

What are the disadvantages to the producer of price discrimination?

Answer 41

Some have a higher price causing reduction in consumer surplus
Those who pay for the highest prices may not be able to afford it