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Economics > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

What is derived demand?

A

Demand that comes from the demand for something else

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2
Q

How do you calculate marginal revenue product of labour (MRPL)?

A

Marginal Product of labour x Marginal Revenue

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3
Q

What does marginal mean?

A

Additional

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4
Q

What is marginal revenue product of labour?

A

The extra revenue generated when an additional worker is employed

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5
Q

What point will profit maximising firms employ workers until?

A

When MC=MR

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6
Q

What factors influence demand for labour (Name 3)?

A

Technological advances + substitutes, population growth/number of buyers, labour policies, govt. policies, wage rate

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7
Q

What is the definition of labour supply?

A

The number of workers willing and able to work, multiplied by the hours they are willing and able to work

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8
Q

What factors effect labour supply?

A

Wage rate, wage rate in other industries, mobility of labour, barriers to entry, non monetary characteristics (e.g promotion opps and job security), size of working population

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9
Q

What is the elasticity of labour demand?

A

The responsiveness of demand when there is a change in wage rate

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10
Q

What factors determine elasticity of labour demand?

A

Labour costs as a % of total costs, ease and cost of factor substitution (labour demand is more elastic when a firm can substitute easily), price elasticity of demand for final product (can a firm pass on a higher labour cost to consumer)

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11
Q

What is the equilibrium wage rate?

A

The wage that brings the demand and supply of labour into equilibrium

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12
Q

What are the benefits of a minimum wage?

A

Reduces poverty, increases productivity, increases incentives to accept a job, increased investment

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13
Q

What are the cons of a minimum wage?

A

Regional variations in wages, higher wages passed on consumers, more workers getting stuck on minimum wage, cost push inflation, unemployment, poorest don’t benefit.

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14
Q

What is monopsony?

A

Occurs when a firm has a market power in employing factors of production. There is one buyer and many sellers.

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15
Q

What is the mobility of labour?

A

Refers to how easily workers can move to different jobs in the economy

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16
Q

What is geographical mobility?

A

How easy is it for a worker to move between different regions and countries to seek new work

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17
Q

What is occupational mobility?

A

How easy is it for a worker to move from one occupation to another

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18
Q

What creates occupational immobility?

A

Structural unemployment, decline of heavy manufacturing, robotics replacing jobs, foreign competition

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19
Q

How can you reduce occupational immobility?

A

Invest in training, subsidise the provision of vocational training to increase skills, apprentiships

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20
Q

How is geographical immobility created?

A

Family ties, costs involved (e.g moving home), regional price variations, language barriers, differences in cost of living

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21
Q

How can you reduce geographical immobility?

A

Higher wages/a fair minimum wage, investment in infrastructure, subsidies, reforms to housing market

22
Q

What are the characteristics of perfect competition?

A

Low barriers to enter/leave market, large number of firms, products are identical, consumers and producers have perfect knowledge, price takers

23
Q

What are the characteristics of a monopoly?

A

Barriers to enter/leave market, small number of firms,only one product, no competition (question on quality), one seeker and lots of buyers, producers have perfect knowledge

24
Q

What are the advantages of monopolies?

A

Research and development (e.g Apple), economies of scale, a firm may have gained monopoly power because it was the most efficient.

25
Q

What are the disadvantages of monopolies?

A

Higher prices, allocative inefficiency (price is greater than MC), productive inefficient (not the lowest point on AC curve), worse quality products.

26
Q

What is price discrimination?

A

When a firm charges a different price to different groups of consumers for an identical good or service unrelated to the cost of supply.

27
Q

What are the advantages of price discrimination?

A

Firms can increase revenue, increased revenue can be used for research, some consumers will benefit from lower fares.

28
Q

What are the disadvantages of price discrimination?

A

Decline in consumer surplus, those who pay higher prices may be poorest, administration costs in separating the markets

29
Q

What is monopolistic competition?

A

A competitive market but the products are differentiated (a form of imperfect competition)

30
Q

What are the characteristics of monopolistic competition?

A

Many firms, freedom of entry and exit, differentiated products, allocatively and productively inefficient, supernormal profits in short term, normal profits long term.

31
Q

What is an oligopoly?

A

Competition between the few (dominated by a small number of firms)

32
Q

What are characteristics of an oligopolistic market?

A

Stable prices, potential for collusion, interdependence of firms, high barriers to entry, non price competition may be prevalent, brand loyalty may be potent

33
Q

What are the benefits of collusion?

A

Collusion lowers the costs of competition, collusion reduces uncertainty in a market, businesses in a cartel recognise their mutual interdependence and act together

34
Q

What are the characteristics of contestable markets?

A

Low barriers to entry and exit, little sunk costs, lower prices, profits low to discourage new entrants, aggressive marketing, hit and run tactic.

35
Q

What is the concentration ratio?

A

% of market share taken up by the largest firms

36
Q

What are the advantages of monopsony?

A

Reliability of orders for the suppliers, economies of scale for both, lower costs should lead to increased profits, guarantee of buyers, buyers have choice.

37
Q

What are the Disadvantages Of monopsony?

A

High risk for suppliers, revenue may be low as buyers dictate price, buyers may abuse power (unethical)

38
Q

What is organic growth?

A

Achieved by increasing output and enhancing sales internally

39
Q

What is external growth?

A

Growing the business by either merging or taking over another business

40
Q

What is a horizontal merger?

A

Joining with a firm at the same stage of production

41
Q

What is a conglomerate?

A

When a firm has a merger or takeover with another firm whom they have nothing in common with

42
Q

What is a demerger?

A

Separation of a large company into two or more smaller firms

43
Q

What are primary activities?

A

Involve natural resources or raw materials

44
Q

What are secondary activities?

A

Manufacturing of raw materials into finished products

45
Q

What are tertiary activities?

A

Involves providing a service, selling and distributing the finished product

46
Q

What are economies of scale?

A

Reducing average costs as you increase output

47
Q

What is allocative efficiency?

A

Correct goods and services (price =MC)

48
Q

What is productive efficiency?

A

Lowest AC

49
Q

What is x efficiency?

A

Your costs are on the AC line as expected

50
Q

What is dynamic efficiency?

A

Long term efficient use of SNP

Economics (4 decks)

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