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Principles of Economics > Week 9 > Flashcards

Week 9 Flashcards

1
Q

What is the demand for labour driven by?

A

Firms wanting to create a good/service

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2
Q

Who supplies labour in the labour market?

A

Households

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3
Q

List the assumptions made when discussing labour markets.

A

Labour is homogenous

There is a single equilibrium wage for labour

Workers have no bargaining power

There is no limit on the amount of labour supplied

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4
Q

In the supply and demand model for the labour market, what does quantity refer to?

A

Number of workers, hours worked, etc.

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5
Q

In the labour market, what does price refer to?

A

Wage rate

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6
Q

What economic principle does labour exhibit?

A

Diminishing marginal product

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7
Q

How is the value of the marginal product VMPL expressed?

A

VMPL = P * MPL

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8
Q

What condition leads a firm to hire an extra worker?

A

If the worker adds more to revenue than to cost

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9
Q

What type of curve does the demand for labour typically follow?

A

Downward-sloping demand curve

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10
Q

What do indifference curves illustrate in the context of labour markets?

A

An individual’s choice between consumption and leisure

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11
Q

How does a higher wage affect the choice between consumption and leisure?

A

Increases consumption and decreases leisure due to substitution effect

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12
Q

What is the income effect of a higher wage on leisure consumption?

A

Leisure becomes more affordable, leading to increased consumption of leisure

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13
Q

What do classical economists believe about the real wage rate?

A

It indicates purchasing power

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14
Q

What does the horizontal demand curve imply for individual workers?

A

They can work ‘as much as they want’ at the equilibrium wage rate

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15
Q

What is the classical view on unemployment at equilibrium?

A

Everyone who wants to work can find a job

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16
Q

What are the classicists’ explanations for real world unemployment?

A

Voluntary or due to union/government interference

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17
Q

What may prompt a government to implement a minimum wage?

A

To raise wages perceived as too low

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18
Q

List the justifications for implementing a minimum wage.

A

Promoting fairness/equity

Reducing income inequality or poverty

Incentivising work

Social responsibility

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19
Q

What effect does a minimum wage set above equilibrium wage have on the labour market?

A

Results in excess supply of labour (unemployment)

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20
Q

What causes wage disparities?

A

Differences in jobs

Differences in workers

Discrimination

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21
Q

What are compensating differentials in the context of job differences?

A

Wages vary due to job characteristics

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22
Q

How does education/training affect wage differences?

A

Different levels of human capital lead to different earnings

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23
Q

What factors can lead to discrimination affecting wages?

A

Prejudice

Historical or cultural norms

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24
Q

What’s the formula for MPl?

A

MPl = change in output / change in labour input

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25
Q

What defines employed people?

A

Those who are working in a paid job.

26
Q

What defines unemployed people?

A

Those who want to work but are without a job.

27
Q

How is the labour force defined?

A

The total number of employed plus the total number of unemployed.

28
Q

What are economically inactive individuals?

A

Those not looking for jobs.

29
Q

According to ONS, who is considered employed?

A

Anyone who carries out at least one hour of paid work a week or is temporarily away from the job.

30
Q

According to ONS, who is considered unemployed?

A

Anyone without work but available and seeking work.

31
Q

What are the two basic ways to measure unemployment?

A

Labour force survey

Claimant count

32
Q

What is the formula for calculating the unemployment rate?

A

Unemployment rate = (No. unemployed / Labour force) * 100.

33
Q

What is the labour force participation rate?

A

The percentage of the adult population that participates in the labour force.

34
Q

What is the formula for the labour force participation rate?

A

Labour force participation rate = (Labour force / Adult population) * 100.

35
Q

What are the inflows into the unemployment pool?

A

Sackings

Redundancies/layoffs

Quits

New entrants & re-entrants

36
Q

What are the outflows from the unemployment pool?

A

Hires

Withdrawals (people becoming economically inactive)

37
Q

What is frictional unemployment?

A

Unemployment arising because it takes time for workers to search for and find new jobs.

38
Q

What is structural unemployment?

A

Unemployment occurring due to a mismatch between the skills of unemployed people and skills required for vacant jobs.

39
Q

What is cyclical unemployment?

A

Unemployment associated with fluctuations in the business cycle.

40
Q

What is the natural rate of unemployment?

A

The assumption that there is a small persistent level of unemployment in the long run.

41
Q

What does full employment represent?

A

A situation where there is no cyclical unemployment, just some persistent frictional and structural unemployment.

42
Q

What two factors influence the rate of unemployment?

A

Job separation

Job finding

43
Q

What causes frictional unemployment?

A

Jobs are different

Workers have different abilities and preferences

Geographical mobility varies

Imperfect flow of information about vacancies

44
Q

What policies can decrease the natural rate of unemployment?

A

Government unemployment agencies enhancing the flow of information

Unemployment insurance (benefits)

Job training programs

45
Q

What is wage rigidity?

A

The fact that wages may be slow to adjust to a level where labour supply equals demand.

46
Q

What factors contribute to wage rigidity?

A

Minimum wage laws

Power of labour unions

Efficiency wage

47
Q

What are the pros of unemployment?

A

Frictional unemployment

Structural unemployment

48
Q

What are the cons of unemployment?

A

Bad for resource allocation

Loss of tax revenue for government

Higher unemployment benefits

Less consumer spending for firms

Cyclical unemployment

49
Q

What is the relationship between output and unemployment?

A

An inverse relationship.

50
Q

What does Okun’s law state?

A

In order to keep the unemployment rate steady, real GDP needs to grow at close to its potential.

51
Q

What is the relationship between unemployment and inflation captured by?

A

The Phillips curve.

52
Q

What did Lipsey argue regarding money wages?

A

They will rise when there is excess demand for labour.

53
Q

What was the impact of stagflation on the Phillips Curve?

A

The relationship broke down.

54
Q

What does the expectations-augmented Phillips curve suggest?

A

There is no unique Phillips curve, but an array of short-run PCs, each associated with a different expected rate of inflation.

55
Q

How is the long-run Phillips curve regarded?

A

As vertical at the natural rate of unemployment.

56
Q

What did Phillips discover in 1958?

A

An inverse relationship between inflation and unemployment for the UK.

57
Q

What did Samuelson and Solow advocate regarding unemployment and inflation?

A

The idea that policymakers could make a trade-off between the two.

58
Q

What did Milton Friedman introduce regarding expectations?

A

Showed that there was no trade-off in the long run.

59
Q

True or False: Phillips was the first to identify a relationship between inflation and unemployment.

A

False.

60
Q

True or False: S&S believed the relationship between inflation and unemployment was stable.

A

False.

Principles of Economics (9 decks)

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