Unit 3A: Microeconomic decision makers- Households, Trade unions, "what dictates the income we earn?"

Question 1

Define routine work

Answer 1

Work that is repetitive and only requires a low skill level

Question 2

Define specialisation (national, regional, firm):

Answer 2

Occurs when firms/countries concentrates production on a specific good(s)/service(s).
Specialisation of labour occurs when workers perform specific tasks, it is one of the factors leading to economies of scale.

Question 3

Define standardised goods

Answer 3

Goods which are uniform in appearance and quality.

Question 4

Define piece rate pay

Answer 4

Wage/income that is linked to output (produced)

Question 5

Define capital intensive

Answer 5

Where manmade resources (e.g. machinery) are mainly used in the production process to produce output

Question 6

Define interdependence

Answer 6

When the action of one impacts on other workers/firms

Question 7

Define labour productivity

Answer 7

A measure of efficiency found by calculating amount of output produced per unit of factor input (e.g. output per machine hour or per worker)

Question 8

Define division of labour

Answer 8

Occurs when the production process is broken down into smaller tasks which each worker can specialise in. Division of labour leads to greater efficiency & productivity

Question 9

Define labour intensive

Answer 9

Where human resources (labour) are mainly used in the production process to create output

Question 10

Explain the 3 levels at which specialisation can occur in

Answer 10

National/countrywide:
A country concentrates production on a specific g/s or a narrow range of g/s. This is related to its factor endowment. The country can trade off the surplus.

Regional: A particular part of a country focuses on the production of a particular good.

Within a firm: Division of labour (just say the definition of DOL)

Question 11

What is the equation for labour productivity?

Answer 11

Labour productivity = Total output / Total workforce

Question 12

Why is specialisation beneficial to countries/firms?

Answer 12

Specialisation enables firms/countries to produce more than they need because workers are more productive and thus production is more efficient. The surplus can be traded off for other g/s.

Question 13

An increase in labour productivity can be caused by:

Labour productivity is a major benefit of:

Answer 13

1. workers have access to technology/capital as well
2. specialisation

Question 14

What are the benefits of specialisation to firms?

What are the drawbacks of specialisation to firms?

Answer 14

Advantages:

• Allows for machinery to be used
• More g/s can be produced efficiently
• The cost of producing a good falls as workers can produce g/s at a quicker pace
• Time is saved

Disadvantages:

• Goods are all standardised (When companies standardize products, they produce more of a smaller number of variations. This means that consumers have fewer choices between products, which may mean they end up purchasing something that doesn’t meet all their needs or desires = lower standards of living)
• The quality of goods may become poor as workers are bored from the lack of variety in work

Question 15

What are the advantages of specialisation to workers?

What are the disadvantages of specialisation to workers?

Answer 15

Advantages:
- Full use is made of each persons talents. They work in what they are good at.

Disadvantages:

• Work may become boring
• Some workers may be replaced by machines
• Workers are less flexible: they are only skilled in one area of production = factor immobility
• Skills may be lost, workers cannot transfer to another industry
• Interdependence: over dependence on others (e.g. if one worker were sick the entire production process would be disrupted)

Question 16

Explain the 4 factors affecting a firms choice of FOP?

Answer 16

1. Productivity
   Amount of output that can be produced from a given level of input. Firms will assemble FOP/resources in the most efficient way to maximise productivity. Improvements in technology may lead to more capital intensive production.
2. Relative prices
   Firms will consider the relative prices of FOP e.g. if a trade union uses its bargaining power to raise wages, a firm may then use less labour as a machines cost is relatively lower
3. The size of the firm
   As firms grow in size they tend to rely more on capital rather than labour (i.e. capital intensive production). This is because they can benefit from technical economies of scale, i.e. average costs of production reduces as scale of production increases.
4. The nature of the product
   The type of product and the scale of demand will influence the combination of FOPs used. E.g. Mass-market products sold in international markets will need to be mass-produced using a high degree of machinery and automation.
5. The size of the firm

Question 17

Define deskilling

Answer 17

Refers to the loss of proficiency over time. It is a cost to the unemployed.

Question 18

Define trade unions

Answer 18

An organisation which aims to protect the interests and worker rights of its members i.e. their terms and conditions of employment, including pay.

Question 19

Define perks/fringe benefits

Answer 19

Additional services/items that can be quantified in terms of money which are a part of a companies renumeration package (e.g. company car)

Question 20

Define disposable income

Answer 20

The amount of income left to spend on g/s after necessary deductions such as income tax

Question 21

Define occupational mobility

Answer 21

The ability of labour to switch between occupations

Question 22

Define a savings account

Answer 22

A pool of funds built up during a persons working life which are then drawn upon in retirement as a source of income

Question 23

Define overtime payments

Answer 23

Income which is derived from working additional hours beyond that which is stated in an employment contract

Question 24

Define a pension fund

Answer 24

A bank account which offers the convenience of withdrawing cash without penalties but will not provide high interest rates

Question 25

Define derived demand

Answer 25

Labour (& other FOPs) are not demanded for themselves, they are demanded for the products they will produce

Question 26

Define minimum wage

Answer 26

The lowest legal amount a firm can pay its workers and is set by the government

Question 27

Define a dividend

Answer 27

Rewards received by shareholders linked to the value of their investment and allocated from a firms profit

Question 28

Define employment

Answer 28

The state of having paid work, or being self-employed

Question 29

Define real income

Answer 29

Income that is adjusted for inflation.

Question 30

Define income taxes

Answer 30

A levy charged by the government on wages/salaries

Question 31

Define training

Answer 31

The development of skills and experience in the workforce that leads to greater productivity

Question 32

Define wage rate

Answer 32

Price of labour. Determined by the demand and supply of labour

Question 33

Define demand of labour

Answer 33

The number of workers firms are willing and able to hire at a given wage rate

Question 34

Define supply of labour

Answer 34

Refers to everyone in the economy who is of working age and is willing and able to work at different wage rates in the workplace

Question 35

List 4 examples of fringe benefits/perks:

Answer 35

• pensions
• health insurance
• company car
• education for children

Question 36

What are the determinants for the demand of labour?

Answer 36

price factors:
wage rates (contraction, extraction)

Non-price factors:

1. productivity of labour
2. Levels of demand for the g/s that the labour produces/booms/recessions
3. Price of alternative factors of production (in the long run capital can be more cost effective than labour e.g. cameras vs gaurds)

Question 37

What are the determinants for the supply of labour?

Answer 37

price factors:
wage rate (contractions, extractions)

non-price factors:

• perks in an industry compared to others
• education and training
• Trade union activity
• Changes in the size of the working population
• Welfare provision
• Changes in the conditions of substitute industries

Question 38

For workers, productivity can increase real __(1)__ as they produce greater output per hour. This can lead to a better ___(2)____ ___(3)____

Answer 38

1. wages
2. living
3. standards

Question 39

One reason supply of labour increases is because wages have grown faster than the average price of a product. Economists call this an increase in __(1)____ wages.

Answer 39

1. real
   Real-wages are income expressed in terms of purchasing power vs actual money recieved.

Question 40

What are the determinants of the demand of labour?

Answer 40

1. Derived demand
2. Productivity of labour
3. Cost of substitute FOPs

Question 41

Determinants of the supply of labour

Answer 41

1. improvements in perks/fringe benefits (change the attractiveness)
2. Education and training required (longer education/training period = less supply = less able to supply coz less access to education = or less willing to supply coz need urgent source of income)
3. Changes in the size of working population (larger size = more people can supply their labour)
4. Trade union activity (if large part of workforce is a part of the trade union then they will have a large impact)
5. Changes in conditions of substitute industries (if workers can move to other industries with ease then supply to that industry will rise)
6. Availability of welfare benefits (welfare = government assisted programmes = e.g. health care, food stamps = lack of welfare benefits can be incentive for the unemployed to find work as without govt assistance life can be very uncomfy

Question 42

What are reasons that people earn different wages in different jobs?

Answer 42

• Difference in ability and talents
• Difference in training and education periods
• Difference in the level of demand for the g/s that the labour produces
• Some jobs are considered ‘dirty’ (e.g. collecting rubbish)
• Unsociable/sociable hours
• Lack of info on jobs and wages
• Labour immobility
• Perks/fringe benefits - in some cases these can make up for low wages
• some jobs are dangerous/risky
• The value of output produced/revenue the employee generates

Question 43

What are the possible reasons that people in the same jobs receive different wages?

Answer 43

• Shortage of workers in certain regions
• Length of service
• Local pay agreements
• Cost of living - wage rates that account for this may differ
• Discrimination

Question 44

What are the wage factors that affect choice of occupation?

Answer 44

• Wages and salaries
• Commissions and performance related pay
• Bonuses

Question 45

What are the non-wage factors that affect choice of occupation?

Answer 45

• Fringe benefits
• Job security
• Cultural issues
• Promotion opportunities
• Career prospects
• Job satisfaction
  
  • dirty
  • dangerous
  • sociable/unsociable working hours
  • allows balance w family comitments

Question 46

What are all the methods of payments to workers?

Answer 46

• Wages: time based = variable cost to firm
• Salary: Monthly payment = fixed cost
• Piece rate: Paid by unit of output produced or sold
• Commision: Percentage of the value of g/s sold
• Bonus: Additional lump sum, could be performance related
• Profit-related pay: Additional payments to workers according to profits
• share options: workers receive shares to incentivize them to work
• Fringe benefits: Additional benefits which have a monetary value

Question 47

Describe the primary sector (definition and in terms of labour)

Answer 47

• extraction & production of raw materials
  
  • farmers
  • coal miners
• Low wage
• Unskilled
• Low value output

Question 48

Describe the secondary sector (define and also in terms of labour)

Answer 48

• Manufacturing goods from raw materials (Higher value output)
  
  • Factory worker
  • Construction worker
• Reasonable wages
• More skilled

Question 49

Describe the tertiary sector (define and also in terms of labour)

Answer 49

• all economic activity offering intangible goods and services to consumers. (High value output)
  
  • Banker
  • Software engineer
• High wage rate
• Lots of training and experience

Question 50

What are the differences between men and women in the workforce

Answer 50

Men

• More are in full-time work
• Career pathway is usually unbroken

Women

• More are in part-time work
• Greater tendency to take career breaks and miss out promotional opportunities
• Accept lower pay coz of family commitments
• Face discrimination
• Less likely to benefit from trade unions (especially in part time)

Question 51

differences between private sector and public secotr:

Answer 51

Public:

• Got Job security
• Got pension (provided by govt)
• Generally lower wages than private

Private

• Got NO job security
• Got NO pension (provided by govt)
• generally higher wages than private

Question 52

What are all the ways in which governments have influence in labour markets?

Answer 52

1. To protect the rights of employers and employees
2. To regulate the practices of very strong trade unions and employers
3. To raise the wages of those with very low pay
4. To increase the competitiveness of firms by raising skill level and productivity
   
   1. subsidising training and learning of new skills
   2. Mandating higher education levels
   3. Remove monopolies and encourage competition
5. To reduce unemployment
   
   1. Have job fairs
   2. Subsidise firms to lower costs of production
   3. reduce/remove unemployment benefits
   4. reduce/remove minimum wage
   5. reduce/remove corporate income tax

Question 53

Define working conditions

Answer 53

The terms of work outlined in an employment contract

Question 54

Define strike action

Answer 54

A type of industrial action where workers withdraw their labour as a result of a dispute with their employers

Question 55

Define overtime ban

Answer 55

A type of industrial action where workers refuse to work additional hours beyond that which is stated in their employment contracts

Question 56

Define inflation

Answer 56

A sustained rise in the average price level

Question 57

Define work to rule

Answer 57

An industrial action where workers withdraw their ‘goodwill’ to engage in any further activities beyond that which is stipulated in the employer-worker contract.

Question 58

Define productivity agreement:

Answer 58

Where an employment agrees to raise the pay for the workforce if workers increase output.

Question 59

Define collective bargaining

Answer 59

A process of negotiation between employers and employees aimed at agreements to regulate working conditions, and other aspects of workers compensation and rights for eorkers

Question 60

Define industrial action

Answer 60

Measures taken by trade unions as a result of disputes with employers. Pressures employers into future discussions about pay and working conditions.

Question 61

What are the roles of trade unions

Answer 61

1. To raise the wages of worker members
2. To improve working conditions (e.g. working hours)
3. To protect job security and support worker members who may have been made redundant/retrenched
4. To campaign for fringe benefits/perks/pensions to employers and the govt
5. To provide legal and financial support to members who were unfairly dismissed or disciplined

Question 62

How can trade unions support their worker members?

Answer 62

• collective bargaining power, organising industrial action
• representing members in court
• protecting job security
• They can either increase demand or decrease supply in order to raise wages
  
  • decrease supply = industrial action - can lead to kinked supply curve
  • increase demand = productivity agreements

Question 63

Pros of strike action to members

cons of strike action to members

Answer 63

pros:

• has immediate affect, production halts,
• businesses suffer and are pressured to respond
• May get media coverage (public support)

cons

• And from general public who no longer have acess to certain services
• Workers arent paid while on strike
• Notice of strike has to be given otherwise its illegal

Question 64

What are all the factors affecting trade union strength?

Answer 64

• proportion of total costs (trade union member wages) wages represent = smaller proportion = more likely to get wage rate rise = coz doesn’t significantly affect costs
• Availability of substitute factors of production
• Levels of profit at a firm
• Laws regulating industrial action
• Worker productivity
• Macro influence - unemployment levels
• Macro influence - boom or recession
  
  • boom = greater consumer demand = easier to raise wages
• Elasticity of g/s
• Number/amount of memberships in trade union

Question 65

Define collective bargaining

Answer 65

Trade unions (using their bargaining power) do collective bargaining, where they can make wage claims for their client

Question 66

What are all the types of industrial action?

Answer 66

• Strike
• Work to rule
• Go slow = productivity and efficiency fall = morale drops
• Sit in = production temporarily stops = loss in wages = if sustained, falling of living standard

Question 67

What are the reasons for greater membership in trade unions?

Answer 67

• growth in manufacturing jobs
  
  • low pay
  • poor working conditions
• widening wealth gap or higher cost of living causes workers to petition for higher wages

Question 68

What are the reasons for less memberships in trade unions?

Answer 68

• Government legislation
• Decline in manufacturing jobs
• Growth in part time jobs
• Growing number of firms agreeing to fairer terms as a part of their corporate social responsibility (CSR)
• Increased unemployment
• Increased self - employment

Question 69

What are the negative impacts of trade unions?

Answer 69

• Industrial action = poorer efficiency = others may not may access to certain services etc
• Govt tax revenue falls as firms profits also falls
• closed shop policy = all workers have to be part of the union
• Membership costs to worker members

Question 70

benefits of trade unions

Answer 70

negotiate minimum wage = raise standards of living = motivate work force = greater productivity

Question 71

What is a kinked supply curve? Define and draw one:

Answer 71

A diagram that illustrates how trade unions will bargain up wage rates above the free market wage rate such that members will only provide their labour at or above the new, higher wage rate

Question 72

What is a backwards bending supply curve? Draw one:

Answer 72

Beyond a certain extent workers are less willing to provide their labour as working hours are too high at higher wage rates

Question 73

Draw a minimum wage graph

Answer 73

Question 74

What kind of people at working age DON’T supply their labour?

Answer 74

• house-husbands/house-wives
• Full time students
• Retirees
• The disabled
• People who are independently wealthy