Topic 3: Microeconomic decision makers Flashcards
Define money
Any commodity that can be used as a medium of exchange
What is cryptocurrency?
A collection of binary data which is designed to work as a medium of exchange
What are the characteristics of “good” money?
1: Durability
2: Divisibility
3: Portability
4: Uniformity
5: Scarcity
6: Acceptability
Define a central bank
an authority that manages a nation’s money supply and banking system (aka monetary authority)
Define household savings
household saving divided by household disposable income
Define consumer spending
The total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy
List the 7 types of payment for labour
1: Wages
2: Salary
3: “Peace Rate” (if you produce nothing, you get nothing)
4: Commission
5: Gratuity (bonus)
6: Stock/share options
7: Fringe benefits
What determines a person’s willingness to take a job? (except pay)
1: future prospects
2: degree of risk/danger (health)
3: job security
4: job satisfaction
5: degree of challenge
6: flexibility
7: qualification
What determines the wage of a particular occupation?
1: degree of experience
2: skill
3: qualification
4: unsociable hours
5: danger
6: remoteness
How are wages determined?
demand and supply of labour
Factors affecting demand for labour
> demand for a good/service
availability of technology
productivity of labour
non-wage employment costs - sick days, can be gov. regulations etc.
Define derived demand
the demand for labour is derived from the demand of goods or services
Factors affecting the supply of labour
> demographics (age of population)
school leaving age
health of population
Define division of labour
Breaking down production into specific tasks to increase productivity. You will see an increase in productivity when dividing labour and allocating them to different people.
What is the role of a trade union?
Trade unions promote & protect the interests of their members by improving pay and working conditions
State the functions of trade unions
1: Negotiation
2: Defence of rights
3: Consultation
4: Advocacy
5: Community/Social
State some industrial actions
1: Strike
2: Work-to-rule (bare minimum needed in a contract)
3: Go-slow (reducing productivity)
4: Sit-in (staying on premises without working until demands are met)
5: Walk-out (everyone leaves at the same time)
Define closed shops
Everyone is in a union (cannot opt out of it)
Define open shops
people can opt in or out
Define a single union
Firms work with 1 union
State the advantages of trade unions to workers
> representation
wages and benefits
protection from discrimination
advocate for training (increased skill), safety, security
State the disadvantages of trade unions to workers
> fees > "lowest common denominator" > stigma > closed shops, no choice > "crossing the picket line" - not striking and going into work
State the advantages of trade unions to firms
> consultation, productivity
highly skilled -> productivity
higher wages, more productive
State the disadvantages of trade unions to firms
> less flexibility
higher costs, less profit
strikes are ruinous
State the advantages of trade unions to government
> consultation
less inequality
more productive national workforce
State the disadvantages of trade unions to government
> lower demand for labour
strikes on a large scale lower economic growth
prices increase as wages increase, so costs increase
Define a sole trader
The firm is owned by one person, typically someone who is involved in the activity of the firm.
While the firm may have employees, they do not own the firm
(i.e. plumber, tradespeople)
Define a partnership
Usually 2-20 people
Benefits are that finance is easier to raise and added skill/experience
(i.e. law firms, dentists, doctors)
Define a private limited company
Sell shares of ownership “privately”. This means you can choose who you see shares to (typically family, friends etc)
Define a public limited company
Typically owned by private shareholders
Where shares of ownership are sold openly on the public stock exchange and you cannot prevent public purchase
Define a merger
two firms merge together to make one big firm with consent
Define a hostile takeover
one firm buys shares from another firm and takes over the latter without consent
How can we measure the size of a firm?
1: Number of Employees
2: Market share
3: Market capitalisation of a firm
4: Total revenue
5: Branches/outlets
State the advantages of small firms
> legally, they are easy to set up and maintain (cost-effective)
proportion of profit to the owner is higher
voice and choice to the owner
personalised or “bespoke” service
easier to manage
State the disadvantages of small firms
> finance is limited
less diversified/risk
capability of owner is a major determinant of success
large commitment needed from the owner
does not benefit from cost savings of being large
How can a firm grow in size?
- expansion into new markets
- hire more employees
- open more branches
- mergers and takeovers
What is horizontal integration?
The merging of 2 firms at the same stage of production (i.e. cheese shop purchasing another cheese shop
What is vertical integration?
The merging of two firms at different stages of production for the same good or service
forward: to a later stage of production
backward: to an earlier stage of production
What is conglomerate integration?
When a firm merges with another firm that produces an entirely different good or service (i.e. an entirely different production process)
Define economies of scale
cost savings brought about by an increase in the scale of production, which results in falling average costs.
Define internal economies of scale
cost savings brought about by an increase in the scale of production of the firm itself
Define external economies of scale
cost savings brought about by an increase in the size of the market industry
Define purchasing EoS
larger firms an buy in bulk, therefore resulting in a lower AC
Define financial EoS
Larger firms are more “credit worthy”. As they tend to have greater resources & a longer credit history, banks will give them lower interest rates. They also tend to borrow larger amounts
Define managerial EoS
Larger firms can afford to emplor the most efficient managers. This will boost productivity, therefore lowering ACs. Smaller firms cannot justify emoying a manager, (i.e. 2 employees) or can’t afford to attract the best talent with small pay
Define technical EoS
Larger firms can justify & afford to purchase more efficient machinery. This will increase TC but increase Q by a greater amount, therefore lowering TC
Define marketing EoS
larger firms can attract better talent to market for them, thus increasing quality as a result of the increase in scales. They can afford to market their products more widely, & therefore will experience on increase in sales & an increase in Q
What determines how much demand there is for a factor of production?
1: Cost
2: Availability
3: Quality
What is a labour intensive industry?
Where the total cost of labour is proportionally higher than the cost of other factors in production
What is a capital intensive industry?
when the total cost of capital is greater in proportion to that of any other factor of production
External EoS
> lower recruitment costs (ease of recruitment)
support services are widely available
quality of infrastructure
Diseconomies of Scale
> rising average costs due to an increase in the scale of production
results in:
> miscommunication: if a firm grows in size, it becomes harder to communicate effectively
> harder to manage, decisions are slower: if a firm grows in size, it will have a narrow leadership structure (tiers of leadership)
>demotivation: leaders and owners are quite distant from entry level employees. This can make it hard to motivate staff.
What is the difference between production and productivity?
Production refers to the total output of goods and services of a firm but productivity is a measure of how efficiently resources are used in the production process (i.e. output per hour)
What is total cost?
sum of all fixed and variable costs
