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Economics (MICRO) > Wages theory > Flashcards

Wages theory Flashcards

1
Q

What is a wage

A

The reward for labour

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2
Q

What can be the two ways of producing something

A

Labour intensive
Capital intensive

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3
Q

What do we mean by labour being a derived demand

A

It is derived from the demand for a finished product

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4
Q

What is MPP

A

Marginal physical product, the extra output produced by each additional worker

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5
Q

What is the demand curve on a wages diagram

A

MRP

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6
Q

What is MRP

A

The extra revenue generated by each additional worker

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7
Q

What is on the x and y axis of wages diagram

A

x - Q of labour
y - Wage

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8
Q

Draw a wages diagram

A

-

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9
Q

Explain the shape of an MRP curve

A

MRP theory suggests that a fall in the wage rate will lead to an increased demand for labour

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10
Q

Give 3 causes of an increase in demand for labour (shift right of MRP)

A
  • Increase in the price of finished good/service
  • Higher productivity of each worker (better education/training)
  • Increase in the price of capital
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11
Q

Why does an increase in the price of capital increase the demand for labour

A

If capital is more expensive, labour is now cheaper in relative terms, meaning it will be in greater demand

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12
Q

Give 4 reasons why wage rates differ

A
  • Labour is not homogeneous
  • Trade unions
  • Monopsonies
  • Discrimination
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13
Q

Explain two reasons why labour is not homogeneous

A

Education/training
Age

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14
Q

How does age affect MRP

A

MRP generally increases with age

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15
Q

Draw two diagrams showing the supply and demand for labour of a low skilled job, and of a high skilled job

A

In notes

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16
Q

Explain why the supply curve of a high skilled job starts higher up the Y axis than that of a low paying job

A

Below that point, you would not attract any labour

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17
Q

Explain how the MRP curve of a high skilled worker differs from a low skilled worker

A

The addition of a high skilled worker adds high value to the firm, hence a steeper curve. Whilst a low skilled worker adds relatively little individual value

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18
Q

What is the equation for elasticity of supply of labour

A

% Change in supply of labour/ % Change in wage

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19
Q

Explain why high skilled jobs have inelastic supply

A

In order to attract an additional worker there needs to be a large increase in the wage

20
Q

What is the equation for elasticity of demand of labour

A

% Change in demand of labour/ % Change in wage

21
Q

What is a trade union

A

An organisation that is formed to protect the interests of a group of workers by operating on the principle of collective bargaining

22
Q

What is collective bargaining in a trade union

A

The union speaks for all the workers when negotiating pay

23
Q

What do trade unions do to the price of labour

A

They set a minimum price

24
Q

Draw a diagram showing the effect of a trade union on the supply and demand of labour

A

Notes

25
Q

What are two free market/neo classical criticisms of pay rises from trade unions

A
  • The trade union creates an excess supply of labour (unemployment)
  • Pay rises not based on increased productivity are inflationary
26
Q

What are the 4 factors which determine the power of a trade union

A
  • Membership
  • Militancy
  • Level of profitability of the industry
  • Elasticity of supply of labour
27
Q

What is the militancy of a union

A

How likely a union is to take action

28
Q

What are examples of less militant trade unions

A

Nurses, doctors, careworkers

29
Q

How does the level of profitability of an industry affect the power of a trade union

A

Trade unions will fight to secure a greater proportion of an industries profits for their members in the form of higher wages, if it is not a profitable industry, there is not much to fight for

30
Q

How does the elasticity of supply of labour affect the power of a trade union

A

The more inelastic (skilled) that labour supply is, the more bargaining power a trade union will have

31
Q

What are the two ways a trade union can benefit an employer

A
  • They may perform some of the functions of the HR department (Health & safety, legal advice, pay queries)
  • Help facilitate the introduction of new working practices that improve efficient (e.g. new IT system easy to use for all members)
32
Q

What a monopsony

A

An employer which demands a significant proportion of labour within a particular industry

33
Q

Why do monopsonies have the power to supress wages

A

Workers have a limited choice in terms of where they can be employed

34
Q

Give an example of a monopsony industry

A

NHS doctor
Police
(Government)

35
Q

Draw the monopsony diagram showing the free market equilibrium too

A

Notes

36
Q

What is the optimal number of workers for a monopsonist to employ

A

Where MC=MRP

37
Q

Draw the diagram showing the effect on labour of a trade union in a monopsony market

A

Notes
(Higher quantity of labour and higher wage)

38
Q

How does a monopsony affect wage and quantity of labour compared to if there was a free market

A

A monopsony pays a lower wage and employs fewer workers than if there was a free market

39
Q

How does discrimination affect MRP in 2 ways

A
  • Affects MRP development (gaining skills training/experience)
  • Reduces perceived MRP
40
Q

What are the two common types of discrimination

A

Gender
Ethnicity

41
Q

Draw the diagram showing no discrimination and discrimination

A

Notes

42
Q

Give 4 costs of discrimination

A

Individuals suffer (lower wages)
Producers have a smaller pool of labour to select from (may miss out on best talent)
Government must spend more money on legislation against discrimination (and benefits for those unemployed due to D)
The economy suffers

43
Q

What is the effect of consumers discriminating

A

They face higher costs/less choice/inferior products

44
Q

How does the economy suffer from discrimination

A

There will be less productivity which leads to less growth, and allocative efficiency decreases due to labour not being distributed evenly

45
Q

What is positive discrimination

A

Where MRP is perceived to be higher

46
Q

Give an example of positive discrimination

A

Oxbridge grads/PHD’s

Economics (MICRO) (10 decks)

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