Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ECON102 > Week 10 - Labour markets > Flashcards

Week 10 - Labour markets Flashcards

1
Q

What is the circular flow diagram?

A

Market for goods and services -> goods and services -> Households
Households -> money -> Market for goods and services

Market for goods and services -> money -> Firms
Firms -> goods and services -> Market for goods and services

Market for factors of production -> money -> Households
Households -> factors of production -> Market for factors of production

Market for factors of production -> Factors of production -> Firms
Firms -> Money -> Market for factors of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is labour supply?

A

how we as workers make decisions on how much to work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are two options with how we spend or time (applying an economic model to the decision on how much labour to supply)?

A
  1. Spend time earning money (working)
  2. Spend time enjoying leisure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How to draw a labour supply diagram to do with wage determination?

A

Consider a worker whose utility is defined as a function of leisure and
weekly income. An indifference map and budget line (the slope of which
is determined by the hourly wage) may be drawn:

x axis leisure
y axis income (weekly)
downward sloping line budget line
different indifference curves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does the point of tangency between the budget line and the highest attainable indifference curve determine?

A

hours of leisure demanded and labour supplied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What does a decline in the wage lead to a change in the diagram?

A

an increase in leisure demanded, and a fall in labour supply due to income decreasing, causing the budget line to decrease too

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Is the substitution effect positive or negative?

A

The substitution effect of a wage change on labour supply is always positive

(i.e. the substitution effect of a rise in the wage always tends to increase labour supply, and the substitution effect of a fall in the wage always tends to reduce labour supply

it depends on the indifference curve as a decline in wage may increase leisure demanded, can also increase labour supply)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Is the income effect positive or negative?

A

The income effect of a wage change on labour supply may be positive or negative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

When could the income effect dominate the substitution effect?

A

at high wages which could lead to a backward bending supply of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What approach is there to increase working hours?

A

a two tier salary, paying more when you work eg weekends

this introduces a kink in the budget line, and ensures that workers will wish to supply more labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What approach is there to reduce working hours in the country?

A

charge income tax, payable only over a certain threshold, also makes the budget line kinky

might encourage workers not to go beyond the kink

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is labour demand?

A

the amount of labour that employers seek to hire during a given time period at a particular wage rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the marginal product of labour?

A

the additional output a firm gets by employing one additional unit of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does the law of diminishing marginal product show?

A

shows how, eventually, the
addition to output generated by the last unit of a factor (e.g. labour) employed declines

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does multiplying the marginal product of labour (MPL) by output price give?

A

the marginal value product of labour (MVPL)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the wage in a perfectly competitive labour market?

A

is the marginal cost of labour,
and each firm treats it as given

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the marginal value product of labour?

A

the money value of the additional
output a firm gets by employing
one additional unit of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Where will a profit maximising firm in a perfectly competitive market employ workers up to?

A

the point where w=MVPL

19
Q

What happens if the market price of labour decreases?

A

will hire more workers since its cheaper

20
Q

What does the workers attractiveness to the employer depend on?

A

not only on how many units of
goods she produces, but also on the price of the good and on the wage rate

The MVPL is therefore the labour demand curve of a perfectly competitive profit maximising firm

21
Q

What should the MPL be multiplied by if the firm has monopoly power in the product market?

A

MPL should be multiplied by MR (not price) to give the labour demand curve (the MRPL).

22
Q

What does the labour diagram look like if the firm has monopoly power in the product market?

A

MRP is the left of MVP. Since monopoly produces less output than a competitive firm, it will also employ fewer workers.

23
Q

What does the labour diagram look like if the firm has monopsony power in the labour market?

A

MCL will be upward sloping
Profit maximisation occurs where MCL = MRP, but wage is determined by the average cost of labour (= labour supply)

24
Q

What is monopsony?

A

one buyer and many sellers (eg NHS)

25
Q

When do firms gain monopsony power?

A

when workers arent constantly searching for alternative employment

26
Q

What does a minimum wage graph look like?

A

x axis labour
y axis £ wage

Demand and supply curves
market wage and labour

set a minimum wage above equilibrium

new labour demand and labour supply
causes excess supply of labour, unemployment

27
Q

What does minimum wage cause in a monopsony?

A

can raise employment, MCL becomes the minimum wage (up to the point where ACL passes above it)

28
Q

What does differences in pay reflect?

A

differences in the corresponding marginal value product of labour

but even if people appear equally talented and hard-working, we may observe differences in their incomes

29
Q

What are 4 reasons why we may observe differences in incomes?

A
  1. the human capital theory 2. trade unions
  2. compensating wage differentials
  3. discrimination by employers

winner takes all too?

30
Q

What is the human capital theory?

A

a theory of pay determination that says a worker’s wage will be proportional to his or her stock of human capital

31
Q

What factors are included in human capital?

A

education, training, experience, intelligence, energy, work habits, trustworthiness and initiative that affect the value of a worker’s marginal product

32
Q

How may two workers with the same amount of human capital earn different wages?

A

if one of them belongs to a labour union

33
Q

What is a trade union?

A

a group of workers who bargain collectively with employers for better wages and working conditions

34
Q

What is compensating wage differential?

A

wage differences associated with differences in working conditions

we expect jobs with attractive working conditions will pay less than jobs with poor conditions

35
Q

What does employer discrimination refer to?

A

refers to wage differentials reflecting an arbitrary preference by an employer for one group of workers over another

36
Q

What is customer discrimination?

A

the willingness of consumers to pay more for a product produced by members of a favoured group, even if the quality of the product is unaffected

37
Q

What are winner take all markets?

A

difference in human capital do much to explain observed differences in earnings. Yet earnings differentials have also grown sharply in many occupations within which the distribution of human capital among workers seems essentially unchanged

like sports market

38
Q

What is an example of trends in inequality?

A

Families in the bottom 20 per cent of the income distribution saw their share of national income decline
from 4.1 to 3.4 per cent, whereas the highest 20 per cent of the income distribution saw their share of national income increase from 43.5 to 50.3.

39
Q

What is a way of measuring the distribution of income or wealth?

A

gini coefficient

40
Q

What is the gini coefficient?

A

A measure of equality of distribution of income or wealth by percentages of households or individuals from poorest to richest. It provides a basis for comparing distributions on a objective numerical basis.

41
Q

How is the gini coefficient graph constructed?

A

If the income of the population was perfectly
equally distributed, then any x per cent of the
population would earn x per cent of the income.
– 45 degree line

42
Q

What is the gini index coefficient?

A

A/ (A+B)

43
Q

What is the lorenz curve?

A

the graph of the cumulative
distribution of income or
wealth by percentages of
households or individuals
from poorest to richest

44
Q

What is the x and y axis of the gini coefficient?

A

x axis: accumulative percentage of households

y axis: accumulative percentage of income/ wealth

ECON102 (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions