the firm - owners, managers and employees Flashcards
firm d
Firms employ people and purchase the inputs they need to produce and market goods at prices that more than cover the cost of production§
division of labour d
The specialisation of producers to carry out different tasks in the production process
what are the two main ways a capitalist economy is coordinated
firms and markets
contract d
A legal document or understanding that specifies a set of actions that the parties to the contract are to undertake
firm-specific assets d
Something that a person owns or can do that is more value in the individual’s current firm than in their next best alternative
separation of ownership and control
The attribute of some firms by which managers are a separate group from the owners
how do owners incentivise managers to serve their interests
performance related pay,
board of director’s ability to dismiss managers
example of an incomplete contract
an employment contract (doesn’t protect firm if worker’s don’t work hard enough, cannot stop employees leaving firm)
what are the costs of job loss
lost income,
lost of firm-specific assets,
loss of medical insurance,
social stigma of being unemployed
employment rent equation
= wage - disutility of effort
unemployment benefit d
A government transfer received by an unemployed person when that person is seeking employment
wage curve d
The curve showing the real wage in the economy as a whole that has to be paid at a given level of employment or employment rate to secure adequate worker effort
higher unemployment rate _____ the reservation wage
reduces
what are the axis on the wage curve diagram
x=employment rate,
y=real wage,
wage curve=j-curve ending up completely vertical
what are the axis on the best response curve and isoprofit function diagram (talking about workers effort)
y=effort per hour,
x=hourly wage,
