Year 13 Flashcards
Diminishing marginal utility
(Check book for Utility diagram*****)
An individual’s satisfaction from consuming goods and services declines as they get more.
Law of diminishing returns
(Check book for MP / AP diagram**)
When more workers are added, productivity and output falls in the SR.
Difference between marginal product and average product
Change in products / Change in inputs = MP
Products / inputs = AP
Increasing returns to scale
A % increase in inputs leads to a more than proportional increase in output. LR
Constant returns to scale
A % increase in inputs leads to the same % increase in output. LR
Decreasing returns to scale
A % increase in inputs leads to a less than proportional increase in output. LR
Minimum efficient scale
The lowest point on the LRAC curve.
A low MES is a competitive market with low barriers.
A high MES is a monopoly with high barriers.
Average cost & marginal cost formula
cost / output = AC
change in cost / change in output = MC
MC is the cost of producing one extra product.
Increases due to DMR.
Economic profit formula
Total Revenue - Economic costs (explicit + implicit)
Above $0 is supernormal
$0 = normal profit
Below $0 is loss making
Actual Revenue
Marginal revenue
Revenue / Output
Change in revenue / change in output
Shut-down price
when a firm’s average revenue is operating below average variable costs. The firm should exit the market as they don’t have the revenue to cover AVC.
Marginal Physical Product (MPP)
Marginal Revenue Product (MRP)
MPP measures extra output as one unit of labour is added.
MRP measures revenue made from extra output.
Marginal Productivity theory
The idea that firms only employ workers up to the profit maximising point. MRP = MC (wage rate)
Benefits of trade unions
*Increases MRP due to better work environment and capital inputs.
*Efficiency wage theory
3 Policies to tackle discrimination in labour markets
- Anti-discrimination laws and regulations eg. Equality Act 2010
- Affirmative Action - ethnic minority hiring targets
- Access to quality education and training
Difference between Equality and Equity
Equality is income & wealth being distributed evenly.
Equity is income and wealth being distributed fairly.
Policies to reduce inequality
Minimum Wage
Reduce income tax for lower income bands and increase personal allowance.
Increase trade union power
Universal credit
Arguments for nationalisation…
*Social equality - government control prices can create allocative efficiency. Introduce social tariffs, making g&s affordable for low income groups. Leads to more equitable distribution of income.
*Funding of infrastructure as a public good. Accessible to all residents, and government can borrow more cheaply to fund capital investment.
Cons of nationalisation…
Reduced profits from private firms lead to less investment (MRMC to ARAC). Lost dynamic efficiency.
Lack of real competition leads to X inefficiency.
Examples of UK nationalisation
Channel 4
Network Rail
Labour Party plan to renationalise railways within 5 years of coming to power
