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Economics > Theme 3 and intro to market structures > Flashcards

Theme 3 and intro to market structures Flashcards

1
Q

Niche market

A

A small segment of a market

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2
Q

Divorce of ownership from control

A

Occurs when owners of a business are not part of the staff who run the business from day to day

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3
Q

What are public sector organisations

A

Organisations that are owned or controlled by the state

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4
Q

What are private sector organisations

A

Organisations owned by individuals or companies

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5
Q

What are non profit organisations

A

Organisations that don’t have profit as a goal, but generate profits to support their aims

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6
Q

What is meant by organic/internal growth

A

A firm increasing its size through investment in capital equipment or an increased labour force

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7
Q

What is meant by external growth

A

The joining together of 2 or more firms under common ownership
Takeover/acquisition and mergers

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8
Q

What is meant by a horizontal integration/merger

A

Firms in the same industry and at the same stage of production

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9
Q

What is meant by vertical integration/Merger

A

Between 2 firms at different stages of production in the same industry

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10
Q

What is meant by forward vertical integration

A

Supplier merging with buyer

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11
Q

What is meant by backward vertical integration

A

Buyer merging with supplier

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12
Q

What is meant by a conglomerate

A

Between 2 unrelated firms

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13
Q

What are some reasons for growth

A
  • Gain EOS
  • Reduce competition
  • Spread risk
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14
Q

What are some constraints on growth

A
  • Size of market
  • Access to finance
  • Owner objectives
  • Regulation
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15
Q

What is meant by a demerger

A

When a firm splits into 2 or more independent firms

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16
Q

What are some reasons for demergers

A
  • Price of business (May be more if 2 independent firms)
  • Increase efficiency and focus on specific operations
  • Lack of synergies
  • Diseconomies of scale
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17
Q

What is meant by synergy

A

Where 2 or more activities/teams/firms put together can obtain greater outcomes than the sum of individual parts

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18
Q

What is a benefit of demergers to the businesses

A

specialisation causing greater efficiency

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19
Q

What is a negative of demergers to businesses

A

May not benefit from economies of scale

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20
Q

What is an advantage to workers of demergers

A

Chance for promotion or new roles

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21
Q

What is a negative of demergers for workers

A

May lead to redundancies

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22
Q

What are two benefits to consumers of demergers

A
  • Lower prices due to efficiency

- More efficient so more investment into research and development for quality

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23
Q

What are negative of demergers to consumers

A
  • Firms May focus on increasing profits so don’t lower prices
  • Firms May reduce product ranges to be more efficient
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24
Q

What is meant by total revenue

A

Money received from the sale of any given quantity of output

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25
Q

What is meant by average revenue

A

Money received per unit sold

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26
Q

What is meant by marginal revenue

A

The addition to total revenue of an extra unit sold

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27
Q

What is meant by the short run

A

The period of time when at least on factor input to the production can’t be varied
Eg manufacturers can buy new machines and get new employees but remain in same factory

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28
Q

What is meant by the long run

A

The period of time where all factor inputs can be varied, but the state of technology remains constant

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29
Q

What is meant by the very long run

A

Period of time when the state of technology may change

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30
Q

What is meant by the law of diminishing returns

A

Exists when increasing quantities of a variable input (eg labour) combine with a fixed input.
Eventually the marginal product of that variable input will decline

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31
Q

What does the law of diminishing returns assume

A

That firms operate in the short run

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32
Q

What is meant by total product

A

The quantity of output measured in physical units produced by a given number of inputs over a period of time

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33
Q

What is meant by average product

A

The quantity of output per unit of factor input

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34
Q

What is meant by marginal product

A

The addition to output produced by an extremely unit of input

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35
Q

What is meant by returns to scale

A

The change in percentage output resulting from a change in all the factors of production (long run)

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36
Q

What is meant by increasing returns to scale

A

When the percentage increase in output is greater than the percentage increase in factors employed

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37
Q

What is meant by constant returns to scale

A

When the percentage increase in output is the same as the percentage increase in factors employed

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38
Q

What is meant by decreasing returns to scale

A

When the percentage increase in output is less than the percentage increase in factors employed

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39
Q

What is meant by economic cost

A

The opportunity cost of an input to the production process

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40
Q

What are fixed costs also known as

A

Indirect or overhead

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41
Q

What is meant by fixed costs

A

Costs which do not vary as output changes

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42
Q

What are variable costs also known as

A

Direct or prime

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43
Q

What is meant by variable costs

A

Costs which change as output does

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44
Q

What is meant by total cost

A

The cost of production at any given level of output

Total fixed + total variable costs

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45
Q

What is average cost

A

Total cost/output

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46
Q

What is meant by marginal cost

A

The cost of producing an extra unit of output

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47
Q

What is meant by optimum level of production

A

Where average costs are at their lowest point (bottom of AC curve)

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48
Q

What is meant by minimum efficient scale

A

The lowest quantity of output where average costs are lowest

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49
Q

What is meant by economies of scale

A

A fall in average costs as output rises

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50
Q

What is meant by diseconomies of scale

A

A rise in average costs of production as output rises

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51
Q

What is meant by internal economies of scale

A

Economies of scale that arise due to a growth in the scale of production with a firm, causing a movement along AC curve

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52
Q

What are examples of types of internal economies of scale

A
  • Technical economies
  • Managerial economies
  • Purchasing
  • Marketing
  • Financial
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53
Q

What is meant by technical economies

A

Exists when there is an increasing or decreasing returns to scale, and leads to an indivisibility

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54
Q

What is meant by managerial economies

A

A larger firm can employ better/more efficient staff

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55
Q

What is meant by purchasing economies

A

Buying in bulk

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56
Q

What is meant by marketing economies

A

Advertising is easier for a larger firm with a recognisable brand

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57
Q

What is meant by financial economies

A

Larger firms have more choice when obtaining finance and can do so more cheaply

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58
Q

What are some examples of how internal diseconomies of scale may occur

A
  • more difficult management
  • Conflict in a larger team
  • Difficult communication due to more people
  • Difficult communication due to geography
  • Higher transport costs due to geography
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59
Q

What is meant by external economies of scale

A

EOS which arise from a growth in the size of the industry within which the firm operates, causing a downward shift in AC curve in long run

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60
Q

What are examples of external EOS

A
  • Lower training costs as can poach workers due to training
  • Government provide free training for large industry
  • Government exports contracts in a large industry but not a small one
  • Better networks eg phones or transport
  • Improvements in technology leading to greater efficiency
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61
Q

What is meant by external diseconomies of scale

A

Diseconomies of scale which arise from a growth in the size of the industry, causing an upward shift in the long run

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62
Q

What are examples of diseconomies of scale

A
  • Taxation eg smoking
  • Increasing cost of labour due to more power (trade unions)
  • Need to be more competitive through innovation so higher costs
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63
Q

Draw the long run average cost curve envelope

A

-

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64
Q

What is meant by normal profit

A

When revenues are equal to costs

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65
Q

What is meant by abnormal profit

A

Difference between revenue and costs, above normal profit

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66
Q

What is meant by break-even point

A

The level of output where total revenue equals total costs

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67
Q

What is meant by loss

A

Difference between revenue and costs, below normal profit

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68
Q

What is meant by profit maximisation

A

Where MC = MR

The point a firm will produce up to

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69
Q

What is meant by a short-run shut down point

A

The point of output at which a firm will shut down production because marginal revenue fails to cover average variable costs

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70
Q

What is meant by the long run shut down point

A

Point at which marginal revenue fails to cover average costs, in the long run all costs are variable so ATC=AVC

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71
Q

What are market structures

A

The characteristics of a market which determine the behaviour of firms within the markets

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72
Q

What are the characteristics that make up a market structure

A
  • The number of firms in the market and their relative size
  • Barriers to entry
  • The extent you which goods are similar
  • Extent to which all firms in the market share the same knowledge
  • Extent to which the actions of one firm will affect another firm
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73
Q

What is meant by market concentration

A

The degree to which the output of an industry is dominated by its largest producers

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74
Q

What is meant by concentration ratio

A

The market share of the largest firms in an industry

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75
Q

What is meant by barriers to entry

A

Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers

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76
Q

Examples of barriers to entry

A
  • Capital costs
  • Sunk costs
  • Scale economies
  • Legal barriers
  • Marketing barriers
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77
Q

What is meant by sunk costs

A

Costs of production which are not recoverable if a firm leaves the industry
Eg advertising costs
Due to cost of failure being high

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78
Q

What is meant by scale economies

A

Established firms have lower unit costs due to higher output eg monopoly

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79
Q

What is meant by legal barriers

A
  • Patents
  • Government give a firm exclusive rights to production eg broadcasting
  • Make nationalised industries into monopolies by legally forbidding private firms to set up in the industry
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80
Q

What is meant by marketing barriers

A

Ability of larger established firms to be more competitive through its brand

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81
Q

What are examples of deliberate barriers to entry

A
  • Limit pricing
  • Predatory pricing
  • Anti competitive practices
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82
Q

What is meant by limit pricing

A

When a firm sets a price lower than a rival firms costs in short term, to deter new entrants

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83
Q

What is meant by predatory pricing

A

When a firm sets a price lower than its own costs (loss leader) to be more competitive

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84
Q

What are examples anti-competitive practices

A
  • Limit and predatory pricing

- Suppliers won’t supply to a rival firm or will only do so at a higher price

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85
Q

What is meant by barriers to exit

A

Factors which make it difficult or impossible for firms to cease production and leave an industry

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86
Q

What is meant by market share

A

The proportion of sales in a market that a firm is responsible for

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87
Q

What are examples of barriers to exit

A
  • Cost and time of redundancies
  • Selling assets and stock
  • Notifying customers and suppliers
  • Current contracts
  • Imperfect knowledge
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88
Q

What is meant by homogeneous goods

A

Goods made by different firms but which are identical

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89
Q

What is meant by non-homogeneous goods

A

Goods which are similar but not identical, such as branded goods

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90
Q

What is meant by product differentiation

A

Aspects of a good or service which distinguish one from another

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91
Q

What is meant by perfect knowledge or information

A

Exists if all buyer in a market are fully informed of prices and quantities for sale, while producers have equal access to information about production

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92
Q

What is meant by imperfect knowledge or information

A

Where there are industrial secrets, eg individual firms don’t know what technology a rival is using

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93
Q

What is meant by asymmetric information

A

When there is imperfect knowledge in a market and some firms know more than others

94
Q

What are the 2 possible relations between firms in an industry

A
  • Independence

- Interdependence

95
Q

What is meant by independence

A

When the actions of one firm will have no significant impact on any other single firm in the market

96
Q

What is meant by interdependence

A

When the actions of one firm will have an impact on other firms in the market

97
Q

When are firms more likely to be independent

A

When there is a large number of firms in the market, eg farming

98
Q

What is meant by Uncertainty

A

When one firm does not know how other firms in the market will react if it changes its strategy such as changing its price

99
Q

When are firms more likely to be interdependent

A

When there are few firms

100
Q

What does interdependence imply about a market

A

That there is uncertainty

101
Q

What are examples of business objectives

A

Profit maximisation
Profit satisficing
Revenue maximisation
Sales maximisation

102
Q

What factor impacts the business objectives of a firm

A

Who controls the firm

103
Q

What are examples of people who may control a firm

A 
Owners/shareholders
Directors and managers
Workers
The state
The consumer
Pressure groups
104
Q

How do firms achieve profit maximisation in short term

A

Produce at MC=MR

105
Q

How may firms achieve profit maximisation in the long run which is different to the short run

A

Using cost plus pricing

106
Q

What is meant by cost plus pricing

A

The technique adopted by firms of fixing a price for their products by adding a fixed percentage profit margin to the long-run average cost of production

107
Q

What is meant by profit satisficing

A

Making sufficient profit to satisfy the demands of owners such as shareholders

108
Q

Why may directors of a business aim to achieve profit satisficing rather than profit maximisation

A

They may have a profits target and be under pressure to achieve this from shareholders, but after that may benefit from personal bonuses for achieving a sales target for example
Usually when there is a divorce of ownership of control

109
Q

What is meant by revenue maximisation

A

When total revenue is highest and when marginal revenue equals zero

110
Q

Why may firms revenue maximise

A

Increase market share

111
Q

What is meant by sales maximisation

A

Occurs when the volume of sales is greatest

112
Q

Why would a firm sales maximise

A

To increase brand awareness

113
Q

What is meant by consumer sovereignty

A

When the economic system allocated resources totally according to the preferences of consumers

114
Q

What is meant by static efficiency

A

More efficient allocation of resources in a specific point in time eg using more labour

115
Q

What are examples of static efficieny

A

Productive and allocative

116
Q

What is meant by dynamic efficiency

A

efficient allocation of resources over time eg investment may be inefficient in short term as you make a loss, but in long term may be most efficient choice

117
Q

What is meant by productive efficiency

A

When production is achieved at lowest average cost (lowest point on AC curve)

118
Q

When does productive inefficiency occur

A

When the cost of production is above the minimum possible

119
Q

What is the only state of the economy in which firms can acheive productive efficiency

A

When the economy is operating on its PPF

120
Q

What other efficiency must a firm achieve to achieve productive efficiency

A

Technical efficiency

121
Q

What is meant by technical efficiency

A

When a given quantity of output is produced with the minimum number of inputs

122
Q

What is meant by X-inefficiency or organisational slack

A

When a firm operates within it’s AC curve, so fails to minimise it’s average costs of production at the given level of output

123
Q

Why can a firm not be X-inefficient but also not productively efficient

A

It may be producing at the lowest average cost for that level of output, but that may not be the lowest possible average cost (pg304)

124
Q

What is meant by allocative or economic efficiency

A

When scarce resources are used to produce goods which satisfy consumer preferences and maximise their welfare

125
Q

At what point is allocative efficiency

A

When price is equal to marginal cost

Because price represents the value a consumer places on a product, and marginal cost is the cost of producing the last unit (can be to the firm or to society)

126
Q

Why may dynamic inefficiency occur

A

If firms fail to take into account the future costs and benefits of the investment, eg you may train workers who then leave in the future

127
Q

What is an example of dynamic inefficiency

A

Investment in short term that is unsustainable and bad for the environment in long term

128
Q

Where on a PPF curve is productively efficient

A

Anywhere on curve

129
Q

Where on a PPF curve is allocative you efficient

A

On the curve, but the point where consumer utility is maximised
Can’t be anywhere on the curve because if one of the factors is 0 it is unlikely this will maximise consumer utility
(Pg306)

130
Q

How is dynamic efficiency shown on a PPF curve

A

A shift to the right

131
Q

What is meant by creative destruction

A

A process where firms produce or create innovative new products that replace or destroy existing products

132
Q

What is meant by a multi-plant monopolist

A

A monopolist where production takes place at a number of different sites, each of which could be sold off to provide private competition in industry

133
Q

What is the purpose of government intervention on monopolies

A

To control natural monopolies who may abuse their power, and promote competition in monopolies that are not totally natural

134
Q

What is the purpose of price control or price regulation in a monopoly

A

To set the maximum price that they can charge so that it is equal to marginal social cost of production, therefore achieving allocative efficiency

135
Q

What industries is price regulation used for

A

Privatised monopolies eg water, train

136
Q

What are evaluation points of price regulation

A
  • Government May not know what costs and revenues the firm has
  • Can lead to dynamic inefficiency (if firm can’t maximise profits in short run then can’t invest for future)
  • Has to be adjusted for inflation
137
Q

What is meant by profit regulation

A

Setting a maximum level of profit a monopolist can earn, by calculating what should be the operating costs and adding a rate of return on capital employed

138
Q

What are three problems with profit regulation

A
  • There is often asymmetric information between firm and regulator, so firm has an incentive to predict that future costs will be higher
  • Firm has little incentive to minimise costs as this will be covered by the consumer
  • Firm has incentive to employ too much capital, as they are allowed to earn a rate of return on capital employed so more capital means higher return
139
Q

What is meant by quality standards

A

Regulators set standards for quality to monopolists

140
Q

Why is quality standards needed for monopolists

A

Monopolists are motivated by profit, so may produce low-quality if this option is most profitable

141
Q

Example of an industry that has quality standards

A

Post office has to deliver to rural areas everyday even at a loss

142
Q

What is meant by performance targets

A

Similar to quality standards, but where government may set standards for a variety of outputs of the firm

143
Q

Examples of performance targets

A
  • Setting price
  • Offering choice to consumer
  • Quality of product
  • Environmentally friendly
144
Q

What is meant by breaking up the monopolist as government intervention

A

Dividing a monopolist into competing units, most effective for a multi-plant monopolist

145
Q

When is breaking up a monopolist ineffective

A

In a natural monopoly

146
Q

What is meant by removing barriers to entry

A

Making it easier for a new firm to enter an industry and compete with a monopoly

147
Q

What are examples of how government can reduce barriers to entry

A
  • Deregulation
  • Restrict current firms ability to market
  • Monitor existing firm for predatory pricing etc
148
Q

When is lowering barriers to entry ineffective

A

In a natural monopoly

149
Q

What are windfall taxes

A

A tax imposed after an event has occurred, usually due to large abnormal profits of a firm

150
Q

Why may windfall taxes be ineffective

A

They are not a long term solution to reducing monopoly power

151
Q

What is privatisation

A

Transfer of ownership from the state to the private sector

152
Q

Why is privatisation likely to lead to greater efficiency

A

Greater incentive to reduce costs to maximise profits

153
Q

Why may privatisation have a negative effect

A

The firm may abuse their power and so charge high prices, offer little choice

154
Q

Why is privatisation beneficial to consumer

A

Lower prices, better dynamic efficiency of firm if higher profits

155
Q

What is nationalisation

A

Transfer of ownership from private sector to state

156
Q

Why does nationalisation have a positive effect

A

Operates to maximise allocative efficiency and therefore benefit consumer, not maximise profit for shareholders

157
Q

Why may nationalisation be ineffective

A

May be less efficient due to lack of incentive to to maximise profit
Management may have little industry experience

158
Q

What is meant by deregulation

A

The process of removing government control from markets

159
Q

What does deregulation attempt to improve

A

Efficiency through promotion of competition

160
Q

Why may deregulation be ineffective

A
  • If natural monopoly, competition will be non-existent and monopolist May abuse power
  • Non-profitable service/products won’t be provided, eg rural buses
161
Q

How do subsidies improve industry

A

Shifts marginal cost curve right, and therefore allows firm to increase level of output and therefore allocative efficiency

162
Q

Draw a graph showing how a subsidy increase output, shade subsidy area

A

Pg 323

163
Q

Why are subsidies often ineffective

A
  • Costly to government
  • Requires an accurate knowledge of industry costs and revenues to set subsidy
  • Reduces chance for dynamic efficiency is future as no abnormal profit at price=marginal cost
164
Q

What is meant by self-regulation

A

When firms establish their own standards or codes of practice and promise to keep to them

165
Q

Why is self regulation often ineffective

A

Staff regulating firm are likely to be employed by them so will be biased

166
Q

Why is self regulation good

A

There is no cost to the government

167
Q

How can monopolies be controlled by preventing their creation

A

Merger policy

168
Q

What is merger policy

A

Government stop any mergers if they believe it will dramatically reduces competition in the industry, or a merger may be forced to sell off assets

169
Q

How can the government encourage growth of small business (examples)

A

Offering training, grants, subsidies and tax incentives

170
Q

What is meant by competitive tendering

A

Government invites private sector firms to bid for the contract to deliver a good or service that is provided by the state, eg to manufacture tanks, or manufacture paper used by the NHS

171
Q

Why does the government use competitive tendering

A

To introduce competition so there is not one seller of goods to the state, which would effectively be a monopoly

172
Q

What is meant by contracting out

A

Getting private sector firms to procure goods and service which are then provided by the state

173
Q

What are the main purposes of government intervention

A
  • Reduce prices for consumers
  • Increase all efficiencies
  • Increase quality
  • Increase customers choice
  • Protect employees (employment legislation)
174
Q

What is the term used to describe a situation where government intervention causes a negative impact

A

Government failure

175
Q

What is meant by regulatory capture

A

An example of government failure, occurs when firms in an industry are able to influence a regulatory body to their advantage

176
Q

What are examples of how regulatory capture can be achieved

A
  • Bribes
  • Bullying (eg threatening to take them to court)
  • Asymmetric information, because firms release the minimum amount of information to regulators
  • Regulators May favour firms, especially if they used to work there
177
Q

Why may people be able to predict revenues and costs of an industry accurately in the short term to impose a subsidy, but not in the long term

A

Subsidies in the short term will distort the market so that in the long term it is difficult to know what the actual figures are

178
Q

What is an example of where performance targets may be ineffective

A

When firms ‘game the system’
Eg train companies may have a target for a percentage of trains to arrive on time, to avoid missing this they may adjust the timetable so that trains have longer to do this

179
Q

Why is there a demand for labour

A

It derives from the demand for the firms product/service

180
Q

What is meant by total physical product

A

Total output

181
Q

What is meant by marginal physical product

A

The number of extra units of output a worker produces

182
Q

What is meant by marginal revenue product

A

The extra revenue a worker is responsible for

Marginal physical product x price

183
Q

What is meant by contribution

A

The difference between the cost of a unit of labour and that workers marginal revenue product

184
Q

When will a firm stop employing more workers

A

When the contribution is 0

185
Q

What is the impact of a rise in the unit cost of labour

A

Reduced demand

186
Q

Why may demand for labour not fall in the short term if wage rate increases

A

Redundancies

Can’t replace them with capital eg machinery

187
Q

What factors can cause shifts in the demand curve for labour

A
  • Change in physical productivity (output per worker and therefore unit labour costs)
  • Market price of good may change
188
Q

What is meant by unit labour costs

A

The cost of employing labour per unit of output

189
Q

What is the demand curve for labour the same as

A

The marginal revenue product curve

190
Q

What is meant by elasticity of demand for labour

A

The responsiveness of the quantity demanded of labour to change in the wage rate

191
Q

What is the formula for elasticity of demand for labour

A

%change QD of labour/%change in wage rate

192
Q

What are the determinants of the elasticity of demand for labour

A

Time
Availability of substitutes
Elasticity of demand for product
Proportion of labour cost to total costs

193
Q

Why is time a determinant of elasticity of demand for labour

A

Longer time period, easier for adjustment of labour eg redundancies, machinery

194
Q

Why does the elasticity of demand for the product effect the elasticity of demand for labour

A

Demand for labour derives from demand for product

195
Q

How can the proportion of labour costs to total costs effect the elasticity of demand for labour

A

If proportion is tiny, change in cost will barely effect total costs and therefore profit

196
Q

Explain the backward bending supply of labour curve

A

Y axis has wage rate
X axis has hours worked
Worker will want to increase hours worked if wage rate rises, so curve goes up
Reaches a point where substitution effect takes place, so worker reduces hours worked for increase leisure time due to higher wage rates

197
Q

What is meant by the substitution effect

A

Workers prefer to change one for the other
Eg increase hours if wage rate increases slightly
Increase leisure time if wage rate increases massively

198
Q

What is the backward bending area of the supply curve an example of

A

Opportunity cost

199
Q

What is meant by the income effect

A

Demand for leisure time increases as income does

200
Q

What factors, other than wage rate, can effect supply of labour and therefore shift the curve

A
  • Job satisfaction
  • Location of job
  • Commute time/distance/cost
  • Friends and family (who you work with)
201
Q

Why is the marginal cost curve of labour upward sloping

A

If a firm employs an extra worker at a higher wage rate, they have to increase wage rate of all employees

202
Q

How can an industry increase the number of hours worked by its labour force

A

Increase number of hours worked by current labour force

Recruit new workers

203
Q

What is meant by the elasticity of supply of labour

A

The responsiveness of quantity supplied of labour to changes in price (wage rate)

204
Q

What are some factors that effect the elasticity of supply of labour

A

Availability of suitable labour in other industries
Time
Extent of underemployment/unemployment

205
Q

How does the availability of suitable labour in other industries effect the elasticity of supply of labour

A

In some industries, workers can be replaced by many workers in other industries especially if they are low skilled
However, there are few other industries that school can employ teachers from for example, as they will not have relevant skills and qualifications

206
Q

How does time effect the elasticity of supply of labour

A

In the short term the elasticity of supply is likely to be lower
Example is that in short term the education service can’t recruit large number of teachers, but can over a 20 year period

207
Q

How does the extent of underemployment and unemployment effect elasticity of supply of labour

A

Higher level of unemployment, the higher the likelihood of elasticity of supply of labour
This is because with high unemployment firms are more able to recruit workers at the existing wage rate

208
Q

Why does neo-classical theory suggest that supply of labour is perfectly inelastic

A

Because supply of labour in an economy is fixed to the number of people in it

209
Q

What are some reasons that supply of labour is not inelastic and is often elastic

A
  • People are in education, retired, prefer luxury time , look after children (social trends)
  • Immigration and emigration
  • in long term education and training can increase supply of skilled labour
210
Q

What are the 2 types of mobility of labour

A

Geographical

Occupational

211
Q

What is meant by geographical mobility of labour

A

Refers to the ability or inability of labour to move to a different area to work

212
Q

What are examples of why geographical immobility of labour occurs

A

People unaware of jobs available
People can’t afford to move
Don’t want to leave family and friends

213
Q

What is meant by occupational mobility

A

The ability of workers to transfer from one occupation to another

214
Q

Why does occupational immobility exist

A

Jobs in specific industries require qualifications and experience, that can not be used to get a job in another industry

215
Q

What is meant by activity or participation rates

A

The percentage or proportion of any given population in the labour force

216
Q

What is net migration

A

Immigration - emigration

217
Q

What is meant by workforce, labour force, working population, and economically active

A

Those who are In a job or seeking work

218
Q

What are some reasons that wage differentials exist

A
  • Age
  • Gender
  • Ethnic background
  • Education, training and work experience
  • Ability to perform tasks
  • The marginal revenue product of the worker
  • Location
219
Q

What is meant by a perfectly competitive labour market

A

Where there is a large number of small firms hiring a large number of individual workers

220
Q

What are the 3 reasons an Imperfectly competitive labour market will exist

A
  • When a firm is a monopsonist eg government employing 90% of teachers
  • When a firm is faced with a monopoly supplier of labour, such as a trade union
  • Or both together (bilateral monopoly)
221
Q

What is meant by a bilateral monopoly

A

When a single buyer faces a single seller in a market

222
Q

What is an example of a bilateral monopoly in the labour market

A

When the government is a single employer in a market, and the workforce is unionised so there is a single seller

223
Q

What factors can impact the power of trade unions

A
  • Proportion of workforce that is unionised
  • The elasticity of demand for labour
  • The profitability of the employer
224
Q

Find booklet about wage differentials

A

In steeds book

225
Q

What are examples of government intervention in labour markets

A
  • Minimum/living wage
  • Maximum wage
  • Public sector wage setting
  • Policies to increase labour mobility
227
Q

What is meant by the minimum wage

A

A legal wage rate per hour that employer must pay

228
Q

What does a minimum wage do to the supply of labour

A

Increase it

229
Q

Why may the minimum wage not increase supply of labour

A
  • Poverty trap
  • People are working less due to demand for leisure time rather than low wage rate
  • Wage rate is too low to incentivise people to work
230
Q

What are the purpose of maximum wage

A
  • Control inflation

- Reduce government spending if in public sector

231
Q

What is meant by public sector wage setting

A

Similar to maximum wage but just in the public sector

Therefore used to control government spending and inflation

232
Q

What are examples of government policy that increase mobility of labour

A
  • Improve education and training
  • provide relocation subsidies
  • Increase knowledge of job opportunities eg job centres
  • Help workers with job applications
  • Reduce discrimination in the labour market and society
233
Q

What is meant by the poverty trap

A

A situation where someone is no better off from working as their income is offset by a loss of state benefits and leisure time

Economics (5 decks)

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