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Economics- Micro > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Marginal physical product of labour

A
  • The extra units of output from employing one unit of labour.
  • (Marginal returns of labour)
  • Calculated by Change in total output/ Change in labour
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2
Q

Marginal revenue product

A
  • The additional total revenue gained from employing one extra unit of labour.
  • Calculated by Marginal physical product x Marginal revenue
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3
Q

Marginal revenue product of labour formula under perfect competition

A

As MR=AR, MRP = MPP x Price

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4
Q

Determinants of demand of labour

A
  • Wage rates
  • Labour productivity
  • Price of a substitute
  • Other labour costs
  • Changes in technology
  • Demand for the product
  • Elasticity of the demand for labour is directly linked to the elasticity of the product.
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5
Q

Elasticity of demand of labour formula

A

(% change in quantity of labour) / (% change in wage rates)

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6
Q

Monetary factors influencing the supply of labour

A
  • Financial rewards for supplying labour

- Workers as economic agents seek to maximise their earnings

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7
Q

Non monetary factors influencing the supply of labour

A
  • Fringe benefits
  • Working conditions
  • Job satisfaction
  • The economic welfare gained by leisure time
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8
Q

Substitution effect

A

A higher hourly wage rate makes work more attractive than leisure, so workers substitute leisure for labour.

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9
Q

Income effect

A

An increase in hourly wage means higher real income and if leisure is a normal good, the quantity of leisure demanded goes up and quantity of labour supplied down.

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10
Q

Leisure time in response to wage changes

A

There’s a positive substitution effect between wage and leisure.
There’s a negative income effect between work and leisure.
Workers derive economic welfare.

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11
Q

Net advantage of working formula

A

Monetary benefits + non monetary benefits

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12
Q

Factors causing supply of labour to shift

A
  • A change in monetary rewards
  • A change in non monetary rewards
  • A change in attitude towards the job
  • How highly people value leisure time
  • Population changes
  • Changes in expectations
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13
Q

Elasticity of supply of labour formula

A

% change in quantity supplied of labour/ % change in wage rate

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14
Q

Determinants of elasticity of supply of labour

A
  • Elasticity of supply of the product
  • Time
  • Availability of substitutes
  • Barriers to entry (Eg. specific qualifications, length of training periods)
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15
Q

Features of perfectly competitive labour markets

A
  • many buyers of labour ie. firms
  • Perfect knowledge regarding wage rates, jobs available and conditions in the market.
  • Homogenous jobs
  • Homogenous workers with the same experiences and skills.
  • Many suppliers of labour ie. workers
  • individual firms and workers have no impact on the wage level.
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16
Q

Monopsony

A

one single buyer

17
Q

Monopsony power

A

the market power exercised in a market by the buyer or the services of FoP

18
Q

Pure monopsonistic labour market

A
  • only one firm looking to higher their services so workers don’t have an alternative.
  • Eg, NHS buying the services of midwives
  • Many large firms exercise a high degree of monopsony power
19
Q

Occupational immobility of labour

A

When workers are unwilling or unable to move from one type of job to another
Eg. because different skills are needed

20
Q

Geographical immobility of labour

A

When workers are unwilling or unable to move from one area to another in search of work

21
Q

Trade union

A

a group of workers who join together to maintain and improve the conditions of their employment.

22
Q

Assumptions of trade unions

A
  • Trade unions are a monopsony supplier of labour which is able to keep non members out.
  • They can prevent members from supplying labour below union wage rate
  • wage rates are determined by collective bargaining
23
Q

Trade unions influence employers through:

A
  • Work to rule
  • Go slow
  • Overtime ban
  • Strike
24
Q

Arguments to increase the national minimum wage rate

A
  • Encourages people to supply labour
  • Reduces inequalities
  • Reduces welfare burden
  • Increases aggregate demand
  • Improves standard of living
25
Q

Arguments against increasing the national minimum wage rate

A
  • May create unemployment
  • Interferes with the workings of the market mechanism
  • Reduces UK competitiveness
  • Lowers aggregate supply
26
Q

Why would a national minimum wage rate increase employment?

A
  • At a higher wage, better quality workers may offer their labour, increasing MRPL. Therefore it makes sense for the firm to hire more labour as MRPL> MCL.
  • Higher wage rates improve job satisfaction so this is likely to lead to a more productive workforce, again increasing MRPL.
27
Q

Wage discrimination

A

Paying different workers different wages for the exact same job.

28
Q

Negative discrimination

A

Undervaluing MRP

29
Q

Positive discrimination

A

Overvaluing MRP

30
Q

Conditions necessary for wage discrimination

A
  • Firms must have some wage setting power; the labour must be imperfect.
  • Distinct/ separate labour markets ie. workers unable to successfully offer their labour in a different market for a higher wage.
  • Lack of legal protection or imperfect information about the discrimination on the part of the government.
31
Q

Advantages of wage discrimination

A
  • Firms can lower costs and be more competitive.
  • Can be difficult to successfully prove discrimination
  • may be beneficial to some firm sif their consumers are racially prejudiced.
  • Positive discrimination (affirmative action) can boost cultural diversity and social justice.
32
Q

Disadvantages of wage discrimination

A
  • May lead to some groups being underpaid and underemployed worsening relative poverty.
  • Increased government spending on welfare benefits.
  • Waste of scarce, valuable resources
  • May lead to increased litigation as workers attempt to take legal action against employers.
  • Lack cultural diversity in the workplace
33
Q

Reasons for gender discrimination

A
  • womens attachment to the labour market is weaker than men
  • women work in predominantly low paid industries
  • Women are underrepresented in the higher paid posts rather than women get paid less than men for the same jobs.
34
Q

Influences of the elasticity of demand for labour

A
  • Demand for the product
  • Time
  • Availability of substitutes
  • Labour costs as a proportion of total costs
35
Q

Women’s earnings compared to men

A

Women still earn 14.9% less than men for the same job and that gap could widen as public sector cuts is pushing women into private sectors, where the gap is wider.

Economics- Micro (6 decks)

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