The Economics of Work and Leisure. Labour markets. Revision Booklet Get a job! Unit F583 exam date: Tuesday 22 nd January 2013 AM.

Size: px
Start display at page:

Download "The Economics of Work and Leisure. Labour markets. Revision Booklet Get a job! Unit F583 exam date: Tuesday 22 nd January 2013 AM."

Transcription

1 The Economics of Work and Leisure Labour markets Revision Booklet 2012 Get a job! Unit F583 exam date: Tuesday 22 nd January 2013 AM. 2 hours

2 Tick if you know Labour demand, supply and wage determination Demand for Labour MRP of Labour Elasticity of demand for labour Supply of labour The backward sloping supply curve (income and substitution effect) Elasticity of supply for labour Wage differentials The net advantages of occupation Economic rent and transfer earnings Labour market failure Monopsony Trade unions Other causes (inactivity, skills shortages, immobility) Unemployment Flexible labour markets Solutions to labour market failure National Minimum Wage Poverty and inequality (causes, measurement of and solutions) Pensions crisis and the aging population EU directives and migration (costs and benefits) what is the difference between work and leisure? Work is time dedicated to labour and earning money whereas leisure is the time that people have left to spend on what they want after they have completed work. Leisure is also something we consume e.g. a cinema ticket. Work usually pays for leisure. 1

3 Labour as a derived demand The demand for labour is derived from the demand for the goods and services that workers are asked to produce It can also be defined as the number of workers willing and able to work in a given occupation or industry for a given wage. The labour force is defined as the number of people either in work or actively seeking paid employment and available to start work. Demand for labour The demand for labour comes from the employer. If the wage rate is high, it is more costly to hire extra employees. When wages are lower, labour becomes relatively cheaper than for example using capital equipment and it becomes more profitable for the business to take on more employees. The reasons for this are: As wages increase firms will look to substitute labour for something cheaper i.e. capital (machinery). As wages increase, this puts up costs of production, which will in turn put up the price of the product, as prices rise demand falls, therefore with less of the product demand there will be less need for labour. 2

4 Demand for labour Summary Demand for labour depends on: Productivity (MPP) higher productivity = higher demand Demand for the good derived demand e.g. If there is high demand for watching footballers, clubs will be willing to pay higher wages because of the extra money they are bringing in. Footballers will have a high MRP Substitutes to labour e.g in some production processes, firms could replace workers with machines (this is more difficult in the service sector) Wages higher wages cause a movement along the demand curve. Non-wage costs include paying national insurance, health insurance potential redundancy pay. Marginal revenue product Marginal revenue productivity of labour (MRPL) is a theory of the demand for labour and market wage determination where workers are assumed to be paid the value of their marginal revenue product to the business. MRP theory suggests that wage differentials result from differences in labour productivity and the value of the output that labour produces. The theory states that workers will be hired up to the point where the Marginal Revenue Product is equal to the wage rate by a maximizing firm, because it is not efficient for a firm to pay its workers more than it will earn in revenues from their labour. MRPL = Marginal Physical Product x Price of Output per unit Marginal physical product is the change in output resulting from employing one extra worker (productivity) 1. This theory shows how many workers to employ 3

5 MRP1 Q Q1 Shifts in the labour demand curve Marginal revenue productivity of labour will increase and therefore shift when there is o o o An increase in labour productivity (MPP) e.g. arising from improvements in the quality of the labour force through training, better capital inputs, or better management. A higher demand for the final product which increases the price of output so firms hire extra workers and thus demand for labour increases, shifting the labour demand curve to the right. The price of a substitute input e.g. capital rises this makes employing labour more attractive to the employer 2. It shows that a higher marginal revenue product will lead to a higher wage if the products a worker makes bring in more money, they can be paid more. Limitations of MRPL theory of labour demand Assumptions criticisms o Workers are homogeneous in terms of their ability and productivity Workers are not homogenous they have a range of skills and abilities and demand o Firms have no buying power when demanding workers (i.e. they have no monopsony power) will be affected by this Firms have monopsony power and force wage rates o Trade unions have no impact on the available labour supply Trade unions influence the wage rate and can act to control the supply of labour o o The physical productivity of each worker can be accurately and objectively measured and the market value of the output produced by the labour force can be calculated The industry supply of labour is assumed to be perfectly elastic. Workers are occupationally and geographically mobile and can be hired at a constant wage rate Productivity cannot be measured in may jobs e.g. services. Additionally some jobs produce no revenue e.g. nurses, teachers, soldiers This is not true, workers do not move around the country from job to job and they do not change occupations easily. Their supply is not elastic, more upward sloping. 4

6 Elasticity of demand for labour and its determinants. Elasticity of labour demand measures the responsiveness of demand for labour when there is a change in the ruling market wage rate. The elasticity of demand for labour depends on: 1. Labour costs as a % of total costs: When labour expenses are a high proportion of total costs, then labour demand is more elastic than a business where fixed costs of capital are the dominant business expense. 2. The ease and cost of factor substitution: Labour demand will be more elastic when a firm can substitute quickly and easily between labour and capital inputs when the relative prices of each change over time. When the two inputs cannot easily be changed in the production process (e.g. when specialised labour or capital is needed), then the demand for labour will be more inelastic with respect to the wage rate. E.g. Amazon replacing pickers (workers) with robots 3. The price elasticity of demand for the final output produced by a business: If a firm is operating in a highly competitive market where final demand for the product is price elastic, they may have little market power to pass on higher wage costs to consumers through a higher price. The demand for labour may therefore be more elastic as a consequence. In contrast, a firm that sells a product where final demand is inelastic will be better placed to pass on higher costs to consumers. 5

7 Supply of labour: The supply of labour refers to the total number of hours that labour is willing and able to supply at a given wage rate. It can also be defined as the number of workers willing and able to work in a given occupation or industry for a given wage. Key factors affecting labour supply 1. The real wage rate on offer in the industry itself higher wages raise the prospect of increased factor rewards and should boost the number of people willing and able to work 2. Overtime: Opportunities to boost earnings come through overtime payments, productivity-related pay schemes, and share option schemes and financial discounts for employees in a certain job. 3. Substitute occupations: The real wage rate on offer in competing jobs is another factor because this affects the wage and earnings differential that exists between two or more occupations. So for example an increase in the relative earnings available to trained plumbers and electricians may cause some people to switch their jobs. 4. Barriers to entry: Artificial limits to an industry s labour supply (e.g. through the introduction of minimum entry requirements or other legal barriers to entry) can restrict labour supply and force average pay and salary levels higher this is particularly the case in professions such as legal services and medicine where there are strict entry criteria to the professions. Indeed these labour market barriers are partly designed to keep pay levels high as well as being methods of maintaining the quality of people entering these professions 5. Improvements in the occupational mobility of labour: For example if more people are trained with the necessary skills required to work in a particular occupation 6. Non-monetary characteristics of specific jobs these can be important they include factors such as the level of risk associated with different jobs, the requirement to work anti-social hours or the non-pecuniary benefits that certain jobs provide including job security, opportunities for promotion and the chance to live and work overseas, employer-provided in-work training, employer-provided or subsidised health and leisure facilities and other in-work benefits including occupational pension schemes 7. Net migration of labour the UK is a member of the European Union single market that enshrines free movement of labour as one of its guiding principles. A rising flow of people seeking work in the UK is making labour migration an important factor in determining the supply of labour available to many industries be it to relieve shortages of skilled labour in the NHS or education, or to meet the seasonal demand for workers in agriculture and the construction industry 6

8 Supply in the short run and the long run The choice for the individual between income and leisure, including the backward-sloping supply curve. (short run supply) The labour supply refers to the total number of hours that labour is willing and able to supply at a given wage rate. It can also be defined as the number of workers willing and able to work in a given occupation or industry for a given wage. In the short run it is difficult for a worker to change occupations so the key influence on supply is changes in the wage rate Higher wages usually will encourage a worker to supply more labour because work is more attractive compared to leisure Substitution effect of a rise in wages: Workers will tend to substitute income for leisure as leisure now has a higher opportunity cost. This effect leads to more hours being worked as wages rise Income effect of a rise in wages: This occurs when an increase in wages causes workers to work fewer hours. This is because workers can get a higher income by working fewer hours. Therefore they may work less. This depends on the number of hours on offer and the relative importance that the worker attaches to income and leisure. Many workers, however, are not able to change how many hours they work, although but as the labour market becomes more flexible, this choice is available to more workers 7

9 Supply of labour in the long run: In the long run people can change their occupations. In this period, the supply of labour is influenced by the net advantages of the job (occupation). These can be pecuniary or non pecuniary Pecuniary factors (financial) These are factors that are directly related to money or have a clear monetary value. People generally want to earn as much as they can and will look for positions that are financially rewarding. Non pecuniary factors (non financial) These are factors of jobs that maybe be either an advantage or disadvantage but, do not involve monetary issues. They will depend on the individual. 8

10 Elasticity of supply, and factors influencing it. The extent to which the supply of labour changes as a result of a change in the wage rate is measure by PES of labour Influenced by: % change in Q of labour supplied % change in wage rate Qualifications and skills required Supply of skilled workers is more inelastic than the supply of unskilled workers e.g. the supply of vets is more inelastic than the supply of shop assistants The length of training A long period may discourage people from the occupation. It will take some time for people to qualify even if the wage rate rises. If it falls, people who are a long way into their training may not leave The immobility of labour Depends on how easy it is for workers to switch jobs (occupational mobility) or to move areas (geographical mobility). Mobility means more elastic supply. The time period Over a longer period of time, labour supply becomes more elastic. In the short run, the wage rate can rise but with little effect on the labour supply 9

11 Wage determination Q: Analyse how wage rates are determined in theory in a competitive labour market Comparing Wage of Lawyers and McDonalds workers Lawyers get higher pay for 2 reasons Supply is inelastic because of the qualifications required MRP of lawyers is high. If they are successful they can make firms a lot of revenue. McDonalds workers however get lower pay because: Supply is elastic, because there are many 1000s of people who are suitable for working, qualifications are not really required The MRP of a McDonalds worker is much lower because there is a limited profit to be made from selling Big Macs. Diagram of Wage Determination for Lawyers and McDonald's Workers 10

12 Wage differentials other reasons why people get paid different amounts Explanations for Wage and Earnings Differentials No one factor explains the gulf in pay that exists and persists between occupations and within each sector of the economy. Some of the relevant factors are listed below Male and female workers despite the Equal pay Act (1976) men are still paid more than women. Women are more likely to work part time and take career breaks e.g. when they have children. The MRP of women is less than men as they are more likely to work in low paid occupations such as cleaning and catering where an extra worker generates low marginal revenue. Compensating differentials - higher pay as a reward for risk-taking, working in poor conditions and having to work unsocial hours Differences in accumulated human capital - wages and salaries should help to compensate people for making an investment in education. There is an opportunity cost in acquiring qualifications - measured by the current earnings foregone by staying in full or part-time education. The private rate of return on achieving Alevels or a university degree should be sufficient to justify the investment made Different skill levels - the gap between poorly skilled and highly skilled workers gets wider each year. One reason is that the demand for skilled labour (in both manufacturing and service sectors) grows more quickly than the demand for semi-skilled workers. This pushes up average pay levels. Highly skilled workers are often in inelastic supply and rising demand forces up the "going wage rate" in a particular industry 11

13 Why do footballers earn more than nurses? The marginal revenue productivity of premiership footballers is very high The supply of footballers with the talent to play in the premiership is extremely low and inelastic. If supply is inelastic high demand tends to result in higher wages rather than greater employment The monopsonistic power of the state in relation to nurses helps to depress wages. There are 20 premiership football clubs competing for the services of players in addition to foreign clubs. Nurses unions are reluctant to strike for higher wages. They have low bargaining power. Professional footballers have rarely called for a strike but if they did their bargaining power would be huge. The vocational nature of nursing i.e. it is a job with a great deal of satisfaction increases the supply of labour and leads to lower wages. The job satisfaction of footballers is also high but has no effect on increasing the supply of labour so their wage is not depressed by this. Labour is not homogenous but even less so in the market for footballers, therefore they can achieve higher wages. 12

14 Other Influences on Wage Determination Demand and supply aren t the only influences on the wage of many workers o Other influences include the relative bargaining power of employers and workers, government policy, and public opinion Wages are likely to be higher when workers have strong bargaining power relative to their employers o E.g. most brain surgeons are members of the BMA, and if this takes industrial action, then the industry would face significant consequences, as brain surgeons cannot be replaced easily by capital o To contrast, waiters have low bargaining power, as few belong to a trade union, and they can be replaced easily Government policy affects wages too o The government is a major employer, and passes legislation that affects the bargaining power of workers and employers (trade union reform), and directly affects wage rates (national minimum wage) Public opinion has an influences on wages also o It values sacrifice undergoing long periods of training and study. The more respected a job is, the more wages are influenced by the amount workers ask for and employers offer. 13

15 Transfer earnings and economic rent As well as being paid different amounts, the nature of the wages that different groups receive varies Definition of Economic Rent A surplus paid to a factor of production (labour) above what needed to keep it in its current occupation is Example of Economic Rent Suppose a football player would be willing to work for 200 a week. If the football player got paid 1,000 a week. His economic rent is 800 a week. Economic rent is the area between the supply curve and the wage rate. The supply curve indicates the minimum wage people are prepared to work at. Definition of Transfer Earnings Transfer Earnings are defined as the minimum payment necessary to prevent a factor of production moving to a different use. Example of Transfer Earnings for Labour A worker may have a transfer earning of 150 a week. If he was paid less, he wouldn t want to work in that occupation. For example, a worker may feel he is better off claiming unemployment benefits that working for less than 150 a week The more inelastic the supply of labour, the greater proportion of earnings is economic rent The more elastic labour supply is, the greater proportion of earnings is transfer earnings 14

16 You must be able to discuss the causes and consequences of labour market failure: Union power Monopsony Imperfect information Skill shortages Economic inactivity Unemployment Discrimination Segmented labour markets Geographical and occupational immobility of labour 15

17 Monopsony A monopsony producer has significant buying power in the labour market when seeking to employ extra workers. A monopsony employer may use their buying-power to drive down wage rates. The monopsonist knows that they face an upward sloping labour supply curve, in other words, to attract more workers in their industry, they must pay a higher wage rate so the average cost of employing labour rises with the number of people taken on. Because the average cost of labour is increasing, the marginal cost of extra workers will be even higher, since we assume that an increase in the wage rate paid to attract one extra worker must also be paid to existing workers. A monopsony producer has significant buying power in the market. A monopsony employer may be able to use their buying power to drive down wage rates In the diagram, Q1 workers are taken on, but the monopsonist can employ these workers at an average wage rate of W2 a pay level below the marginal revenue product of the last worker. The marginal cost of employing one more worker will be higher than the average cost because to employ one extra worker the firm has to pay ore and increase the wages of all workers. The firm only has to pay a wage of W2. This is less than the competitive wage Examples of monopsony employers To maximise the level of profit the firm employs Q2 of workers where MC = MRP Good examples might be the major employer in a small town (e.g. a car plant, a major supermarket or the head office of a bank); nursing homes as employers of care assistants, the government can also have monopsony power as the major employer in the teaching profession or the NHS (the third largest employer in the world behind the Indian Railways and the Chinese Red Army! 16

18 Union power Trade unions are organisations that represent people at work. Their purpose is to protect and improve people's pa y and conditions of employment. They also campaign for laws and policies which will benefit working people. Trade unions exist because an individual worker has very little power to influence decisions that are made about his or her job. By joining together with other workers, there is more chance of having a voice and influence. Effect of Trades Unions on a Competitive Labour Market The union forces the wage up above the equilibrium and there is unemployment of Q3-Q2 But a trade union is not necessarily bad if it is dealing with a Monopsony employer who is paying below the market rate, pushing for higher wages could actually increase the wage rate nearer the equilibrium and create employment as more people will want to work at the higher wage rate. Problems of Trades Unions. 1. Create Unemployment. If labour markets are competitive, higher wages will cause unemployment (Q3-Q2). Trades unions can cause wages to go above equilibrium through the threat of strikes e.t.c. However when the wage is above the equilibrium it will cause a fall in employment. 2. Lost Productivity. If unions go on strike and work unproductively (work to rule) it can lead to lost sales and output. Therefore their company may go out of business and be unable to employ workers at all. 3. Wage Inflation. If unions become too powerful they can bargain for higher wages, above the rate of inflation. If this occurs it may contribute to general inflation. Powerful trades unions were a significant cause of the UK's inflation rate of 27% in

19 The benefits of trades unions depends on their circumstances. If they face a monopsony employer they can help counterbalance the employers market power. They can increase wages without causing unemployment. If unions become too powerful and they force wages to be too high, then they may cause unemployment and inflation It also depends on whether they cooperate with firm or not on increasing productivity. Evaluation of trades unions The trend in trade union membership in the UK has been in decline for many years, as has the number of trade unions. The last 30 years or more have seen a marked decline in industrial action and labour disputes. The labour markets in the UK have become very flexible in comparison with both the past and other member countries of the EU. Trade union power has been weakened by laws e.g. it is now necessary to have a secret ballot and to give the employer 7 days notice of strike action the employer has time therefore hire cover workers. All this evidence points to a reduction in the influence trade unions have on the labour market and consequently the likelihood that they may be causing the market to fail. On the other hand Unions have made great strides to get employers to improve the conditions of work for many of their members in terms of safer working conditions, better structured training programmes and improved communication links between workers and management. The unions have amalgamated on a fairly large scale and consequently in theory increased their potential to exercise monopoly strength. The unions also still have a very important role to play in establishing work practices within many firms in the UK economy and as a consequence have the potential to impact on labour markets both positively and negatively. There are many recent examples of strike and non strike action so unions are still causing disruption. The structure of the economy has changed and the pattern of working too more people work in the service sector and many people are part time. The workforce is more flexible. 18

20 Imperfect information Workers may not have the information they need to get a job or a better job - Employers may not be able to afford to advertise to all potential employees so don t get the best employees solution could be to provide job centres/online information so that the unemployed has access to every job available in the country Skill shortages Occur when firms struggle to recruit people with the right skills may have to bid up wages = increased costs. Sometimes there is a short-termist attitude towards training i.e. employers don t want to spend money on training employees as the benefits they receive only come in the long term and the employees may leave or retire before the reward from training can be reaped. Solutions could be for the government to intervene and subsidise training either in businesses or in colleges Economic inactivity People who are not in the workforce (actively seeking or in a job). Some economically inactive e.g. students will provide a long term benefit. Others could work and represent a waste of resources. Solutions could be to introduce back to work schemes and training for those who have been out of the workforce for a long time. Reducing benefits e.g. incapacity benefit could bring people back into the workforce. Unemployment Unemployment means some labour markets are not clearing Those willing and able to work cannot find a job. This causes- cyclical (lack of aggregate demand) Voluntary, frictional and structural unemployment Frictional Unemployment This is unemployment caused by people moving in between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment. 19

21 Structural Unemployment a) This occurs due to a mismatch of skills in the labour Classical or Real Wage Unemployment: This occurs when wages in a competitive labour market are pushed above the equilibrium. This is sometimes known as disequilibrium unemployment. Wages will also be sticky downwards. This could be caused by minimum wages, or trades unions Demand Deficient or Cyclical Unemployment This occurs when the economy is below full capacity. E.g. in a recession when AD falls there will be a fall in output, therefore firms will employ less workers because they are producing less goods. Solutions to Unemployment Employment Subsidies An employment subsidy could be given to firms who keep on workers part time during the recession. This saves the government the cost of unemployment benefits and prevents workers being idle and losing on the job training. However, the danger of employment subsidies is that they may be misused by firms who see an opportunity to gain extra income. It is also difficult for the government to decide which workers / firms to subsidise. Cutting Minimum Wages A cut in minimum wages could create extra job opportunities. However, there is no guarantee that cutting wages actually creates jobs. Cutting wages would also reduce overall demand in the economy, creating less demand for workers. Education and Training of Long Term Unemployed. Whilst the majority of current unemployment is cyclical, even before the current recession there were pockets of structural unemployment related to a lack of skills. Relevant skills and training programmes would help the long term unemployed get back into work. Reclassification of Incapacity Benefits. Many long term unemployed have been given incapacity benefits when there are still jobs they could do. Rather than conveniently putting people on incapacity benefits, more attention could be given to retraining workers. However, it is a difficult balancing act to prevent those really incapable of work being withdrawn from necessary welfare support. Also, this policy will not reduce the official claimant count, but will increase employment rates. 20

22 Discrimination Discrimination is a cause of labour market failure and a source of inequity in the distribution of income and wealth and it is usually subject to government intervention e.g. through regulation and legislation. Discriminatory treatment of minority groups leads to lower wages and reduced employment opportunities, including less training and fewer promotions. The result is that groups subject to discrimination earn less than they would and suffer a fall in relative living standards. Why does discrimination occur in the labour market? 1. Prejudice the personal beliefs of the employer. 2. Employer ignorance Discrimination arises because employers are unable to directly observe the productive ability of individuals and therefore easily observable characteristics such as gender or race may be used as proxies the employer through ignorance or prejudice assumes that certain groups of workers are less productive than others and is therefore less willing to employ them, or pay them a wage or salary that fairly reflects their productivity, experience and applicability for a particular job. Solution provide information and legislate (pass laws) Segmented labour markets There are barriers that prevent workers moving freely between occupations Some barriers are good e.g. taxi drivers requiring a driving licence and Surgeons requiring skills and qualifications Others are unnecessary and have been introduced to push up wages and to keep groups out Geographical, and immobility of labour Mobility is the ability to move from one sector of employment to another Changing occupation (occupational) Moving to work in another area (geographical) A lack of labour mobility is the cause of structural unemployment (mismatches) Occupational immobility is a result of a skills shortage 21

23 Effects Low skills = low wages Firms limited to lower profits/cannot achieve their objectives Inflation and unemployment (because of skills mismatch ) There is always a small amount of unemployment even if the market is in equilibrium. To solve this AD could be increased but this would lead to inflation (higher costs = higher prices). The lowest level of unemployment that keeps inflation stable is called the non-accelerating inflation rate of unemployment (NAIRU) Limitation on competitiveness Inequality Flexible Labour Markets. Many economists have suggested high levels of structural unemployment are due to inflexible labour markets. For example, if it is difficult to hire and fire workers this can discourage firms from employing workers in the first place. Geographical Subsidies (Regional policy) The geographical spread of unemployment is not as bad as in the 1980s, but the north south gap still exists. Subsidies / tax breaks may be need to encourage firms to open in relatively more depressed areas. 22

24 Methods to achieve labour market flexibility Labour market flexibility refers to the speed with which labour markets adapt to fluctuations and changes in society, the economy or production Methods to achieve it Training and education Cut income tax and UE benefits Link UE benefit to search for employment Remove employment protection legislation (Thatcher did this in the 80s but Labour Govt signed up to the EU social charter in 1997 so had to re-introduce more protection) Implications of it UK more flexible as govt has removed restrictions on hiring and firing. USA has lower protection but other EU has more Widened participation (i.e. more women in the workforce as a result of more part time opportunities Less job security more frictional unemployment but greater employment overall. Greater competitiveness But More frictional unemployment Less job security Greater need to be occupationally and geographically mobile Wage flexibility could lead to greater inequality 23

25 The meaning, measurement and causes of inequality and poverty. There are two types of poverty: Absolute Poverty: This is Income below a certain level necessary to maintain a minimum standards of living. (e.g. enough money to buy the basic necessities of food, shelter and heat. Relative Poverty: This is when income is less than the average income by a certain amount. For example, in the UK relative poverty is defined as income 60% less than average incomes. Income and Wealth It is important to make a clear distinction between income and wealth: o Income - wages and earnings from work; rent from the ownership of land and interest & dividends from savings and the ownership of shares o Wealth is a stock of financial and real assets such as property, savings in bank and building society accounts, ownership of land and rights to private pensions, equities, bonds etc Measuring inequality the Lorenz Curve and the Gini Coefficient o o The further the Lorenz curve lies below the line of equality, the more unequal is the distribution of income. There are problems with the Lorenz curve particular if we are inaccurate in our measure of incomes across the distribution of households in a country The Gini Coefficient is derived from the same information used to create a Lorenz Curve. The Gini Coefficient can take values from 0 to 100 per cent) or between 0 24

26 and 1) where a value of zero would indicate that each household had an equal share of income, while higher values indicate greater inequality. Policies to help reduce the Problem of Poverty UK 1. Increase/decrease the minimum wage 2. Cut the lowest rate of tax 3. Increasing Benefits to the poor Explanation and evaluation. 1. Increase/decrease the minimum wage the NMW is currently 6.19 p.h. Since the introduction of the NMW many low paid workers have seen an increase in the hourly wage as firms are obliged to pay workers the statutory minimum wage. To some extent this has helped reduce relative poverty, as the lowest paid workers have seen a significant increase in their weekly income. This is more prevalent in the North where wages tended to be lower; fewer jobs in the south have been affected by the NMW. The minimum wage has an effect on poverty if it is set at the right rate. The aim is to protect very low paid workers. In theory if it is set too high it can cause unemployment. In the diagram the equilibrium wage is at W1 Q1 but if the minimum wage is above this then Q2 Q3 will represent unemployment as more labour is supplied than demanded. 25

27 Advantages of NMW Fair for workers to be paid a minimum wage. Helps low earners gain a higher standard of living Extra disposable income should lead to extra spending in the economy Helps increase the gap between wages for low earners and unemployment benefit May help reduce unemployment as it s an incentive to work Disadvantages of NMW Increases the cost to businesses Businesses may increase their prices (cost push inflation) Businesses may be unable to afford to employ as many workers Could cause unemployment Other workers may now ask for a pay rise Doesn t help the unemployed who don t receive a wage It only works if the a person has a job no effect on the unemployed. Effect of Minimum Wage on a Monopsony A Monopsonist will maximise profits at Q2 (because MRP = MCl) it will then pay a wage of W2. However if a NMW raises to W 1 the demand for labour will increase to Q1 and employment increases. Unemployment will not increase until the wage rises above W3. Evidence suggest that increasing the NMW does not cause unemployment to increase suggesting this model is more accurate than the classical view. However it will clearly depend upon how much the NMW is increased. It is also likely that some labour markets will be more competitive than others therefore the effect may differ for different industries. Other positive benefits of the NMW include the fact it may increase the incentive for the unemployed to get a job rather than stay on benefits, however the JSA is quite low and the gap between benefits and work is quite high already. In conclusion an increase in the NMW can help the low paid increase their income, thereby reducing relative poverty to some extent. However, people have to actually be in work for it to reduce their poverty. 26

28 2. Cut the lowest rate of tax By making tax rates more progressive i.e. the % you pay gets progressively more the more you earn, more money can be kept by poorer workers. By raising the basic allowance the amount you can earn before you pay any tax, lower paid workers earn more money which is seen as an incentive to work. The problem with this is the reduced tax revenue to the government, however if it is an incentive to work, the government should end up paying less on benefits. 4. Increasing Benefits to the poor Means tested benefits involve increasing welfare benefits to those on low incomes. Advantages of means tested benefits: They allow money to be targeted to those who need it most. e.g family tax credit or pension credit. However means tested benefits are often unpopular because people are stigmatised as being poor. Also it may create a disincentive to earn a higher wage, because if you do get a higher paid job you will lose at least some of your benefits and pay more tax. This is known as the benefit trap or the poverty trap Some relatively poor may fall just outside the qualifying limit. Also not everyone entitled to means tested benefit will collect them because of ignorance or difficulties in applying. Pensions the problem of the aging population The population is aging meaning that more people than ever are over the age of 60. The birth rate is falling which causes a problem as the working population is falling meaning that more people are being supported than are working. UK state pensions are financed by pay as you earn (PAYE). National Insurance is paid on wages which contributes to the state pension scheme over a person s working life. The tax burden on workers may have to rise to meet the state pension needs. To combat this problem the government could: Raise the retirement age 66 by 2030 and 68 by 2050 Discourage early retirement through favourable tax schemes Increase the labour force by other means e.g. getting more inactive people to work or by encouraging immigration Promote private pension schemes c) Compulsory Company pensions schemes o Relative poverty reflects the fact that some sections of society have an income far lower (e.g. 50% less) than the average salary. If it was compulsory to pay into a company pension scheme people would have more income when they retired. 27

29 The impacts of migration and EU directives on labour markets. Migration means people entering and leaving the country and therefore the workforce. EU members are allowed to live and work in any other member country. The benefits of migration: An expansion of the labour supply migration can extend the pool of available labour for firms: for example, skilled migrants may alleviate shortages in sectors such as the NHS, agriculture, construction, computing industries and state education - allowing the government to meet targets for improving public services. Migrants tend to be young adults so a rising trend of migration can help to increase the population of working age and also the flexibility of the labour market. Many migrants into the UK are highly skilled people, Reduced pressure on wage inflation - an increase in labour supply from migration is likely to restrain wage growth in the short term, Immigrants are usually prepared to work for lower wages than domestic workers. This can mean lower costs of production for suppliers which can then feed through into lower retail prices for consumers. Aggregate demand effects- economic migrants are likely to earn more than they spend contributing to the growth of the local or regional economy Entrepreneurship supporters of a more relaxed approach to migration claim that many of the migrants are younger and have the potential to be entrepreneurial in their approach another potential supply-side gain for the economy Higher trend growth - taken as a whole, a positive rate of migration can add both to short-term economic growth (via a rise in aggregate demand) and also a slightly faster trend rate of growth (which brings economic benefits in the long run). The costs of migration Depressing the real wages of domestic workers e.g. an inflow of new workers will lead to an increased supply of low skilled workers and therefore drive down the equilibrium wage for domestic low-skilled employees Doubts about productivity effect: Many immigrants, especially those from poorer countries, have a low educational level and are more likely to be unemployed or economically inactive than the domestic population. Increased pressure on the welfare state (benefits, education, housing and health) the taxpayer may eventually have to pay for the increased level of government spending needed to extend the economy s infrastructure Unemployment concerns: There is a risk of higher unemployment if the skills profile of migrants does not match the demands of the growing industries in the economy 28

30 Increased pressure on scarce resources: The inflow of immigrants into an area may increase the demand for housing and push up the cost of living. To compensate their workforce many employers are likely to raise money wages The longer term benefits and costs of increased labour migration are very hard to quantify and estimate. Much depends on: The types of people who choose to migrate from one country to another The ease with which they assimilate into a new country and whether they find fulltime employment Whether workers who come to the UK decide to stay in the longer term (this may involve members of their extended family joining them) or whether they regard migration as essentially a temporary exercise (e.g. to gain qualifications, learn some English) before moving back to their country of origin. 29

31 30

3.5.3 Wage determination in competitive and non-competitive markets

3.5.3 Wage determination in competitive and non-competitive markets 3.5.3 Wage determination in competitive and non-competitive markets Labour market equilibrium: The labour market is a factor market. The supply of labour is determined by those who want to be employed

More information

OCR Economics A-level

OCR Economics A-level OCR Economics A-level Microeconomics Topic 4: Labour Market 4.1 Wage determination Notes The main influences on demand and supply in labour markets The labour market is a factor market. The supply of labour

More information

OCR Economics A-level

OCR Economics A-level OCR Economics A-level Microeconomics Topic 4: Labour Market 4.2 Labour market issues and themes Notes The labour force and the working population The working age population is between the ages of 18 and

More information

CIE Economics A-level

CIE Economics A-level CIE Economics A-level Topic 3: Government Microeconomic Intervention c) Labour market forces and government intervention Notes Demand for and supply of labour The labour market is a factor market. The

More information

Edexcel Economics AS-level

Edexcel Economics AS-level Edexcel Economics AS-level Unit 1: Markets in Action Topic 5: Wage Determination in Labour Markets 5.1-5.2 The demand for and the supply of labour Notes The main influences on demand and supply in labour

More information

AS Economics. Economics of the National Minimum Wage. tutor2u Supporting Teachers: Inspiring Students. Economics Revision Focus: 2004

AS Economics. Economics of the National Minimum Wage. tutor2u Supporting Teachers: Inspiring Students. Economics Revision Focus: 2004 Supporting Teachers: Inspiring Students Economics Revision Focus: 2004 AS Economics Economics of the National Minimum tutor2u (www.tutor2u.net) is the leading free online resource for Economics, Business

More information

Unit 5: The Resource Market. (The Factor Market or Input Market)

Unit 5: The Resource Market. (The Factor Market or Input Market) Unit 5: The Resource Market (The Factor Market or Input Market) 1 2 The Circular Flow Model The Product Market- The place where goods and services produced by businesses are sold to households. The Resource

More information

Section 1. The basic economic problem

Section 1. The basic economic problem Economics (2281) Source: IGCSE and O level economics by Paul Hoang, Margaret Ducie To be Confident in working with information and ideas their own and those of others Responsible for themselves, responsive

More information

SUMMARY OF THE MODELS OF UNIT 4

SUMMARY OF THE MODELS OF UNIT 4 SUMMARY OF THE MODELS OF UNIT 4 Chapter 13: Eight Labor Market Models 1. Competitive labor market in a competitive product market 2. Competitive labor market in an imperfectly competitive product market

More information

Unit 5: The Resource Market. (aka: The Factor Market or Input Market)

Unit 5: The Resource Market. (aka: The Factor Market or Input Market) Unit 5: The Resource Market (aka: The Factor Market or Input Market) 1 Perfect Competition Resource Markets Monopsony Perfectly Competitive Labor Market Characteristics: Many small firms are hiring workers

More information

Edexcel Economics (A) A-level Theme 2: The UK Economy - Performance and Policies 2.3 Aggregate Supply

Edexcel Economics (A) A-level Theme 2: The UK Economy - Performance and Policies 2.3 Aggregate Supply Edexcel Economics (A) A-level Theme 2: The UK Economy - Performance and Policies 2.3 Aggregate Supply Detailed Notes 2.3.1 The characteristics of Aggregate Supply The AS curve: Aggregate supply is the

More information

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION BACHELOR OF BUSINESS Sample FINAL EXAMINATION Subject Code : ECO201 Subject Name : LABOUR ECONOMICS This examination carries 50% of the total assessment for this subject. Examiner(s) Moderator(s) Joyce

More information

ECONOMICS. Component 1 Microeconomics. A LEVEL Exemplar Candidate Work. For first teaching in 2015.

ECONOMICS. Component 1 Microeconomics. A LEVEL Exemplar Candidate Work.  For first teaching in 2015. Qualification Accredited Oxford Cambridge and RSA A LEVEL ECONOMICS H460 For first teaching in 2015 Component 1 Microeconomics Version 3 www.ocr.org.uk/economics Contents Introduction 3 Question 2 Candidate

More information

AS and A-level Economics podcast transcript Podcast two: The Labour Market

AS and A-level Economics podcast transcript Podcast two: The Labour Market AS and A-level Economics podcast transcript Podcast two: The Labour Market In this podcast, we will be talking about: The Labour Market. Particularly; the demand for labour and marginal productivity theory,

More information

Eco402 - Microeconomics Glossary By

Eco402 - Microeconomics Glossary By Eco402 - Microeconomics Glossary By Break-even point : the point at which price equals the minimum of average total cost. Externalities : the spillover effects of production or consumption for which no

More information

ECONOMICS 2281/21. Published

ECONOMICS 2281/21. Published Cambridge International Examinations Cambridge Ordinary Level ECONOMICS 2281/21 Paper 2 Structured Questions May/June 2016 MARK SCHEME Maximum Mark: 90 Published This mark scheme is published as an aid

More information

OECD Multilingual Summaries Better Skills, Better Jobs, Better Lives

OECD Multilingual Summaries Better Skills, Better Jobs, Better Lives OECD Multilingual Summaries Better Skills, Better Jobs, Better Lives Summary in English Read the full book on: 10.1787/9789264177338-en Skills transform lives and drive economies. Without the right skills,

More information

What is Demand for Labor? Demand is the different quantities of workers that businesses are willing and able to hire at different wages.

What is Demand for Labor? Demand is the different quantities of workers that businesses are willing and able to hire at different wages. What is Demand for Labor? Demand is the different quantities of workers that businesses are willing and able to hire at different wages. What is the Law of Demand for Labor? There is an INVERSE relationship

More information

Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Edexcel (B) Economics A-level Theme 1: Markets, Consumers and Firms 1.5 Market Failure and Government Intervention 1.5.2 Government intervention and failure Notes Purposes of intervention with reference

More information

Unit 4: The Factor Market

Unit 4: The Factor Market Unit 4: The Factor Market (aka: The Resource Market or Input Market) - Factor Wages - Perfect Competition vs. Monopsonies - Optional Combination of Factors - Income Inequality - Taxation 7 Market in which

More information

5.2 Demand and Supply in the Labour Market

5.2 Demand and Supply in the Labour Market Summary - Chapter 5 Labour Markets and Unemployment 5.2 Demand and Supply in the Labour Market 5.2.1 Labour Supply and the Consumption Leisure Trade-off - The consumption leisure trade-off is the fundamental

More information

Imaging you were one of these workers. What would you do?

Imaging you were one of these workers. What would you do? Imaging you were one of these workers. What would you do? Monopsony and Trades Unions Trades Unions in Labour Markets In this lesson we will Investigate how trades unions seek to protect the welfare of

More information

ECO401 Latest Solved MCQs.

ECO401 Latest Solved MCQs. This year, if national product at factor cost is Rs. 500 billion, indirect taxes 150 billion and subsidies Rs. 50 billion, then national product at market prices will be: _ Rs. 700 billion. _ Rs. 650 billion.

More information

Sample exam questions (Part 1)

Sample exam questions (Part 1) Sample exam questions (Part 1) Student book page 50 Answers and mark scheme Question 1 (a) 2 marks for clear understanding, e.g. how to allocate scarce resources to try to satisfy unlimited human wants;

More information

Monopoly. The single seller or firm referred to as a monopolist or monopolistic firm. Characteristics of a monopolistic industry

Monopoly. The single seller or firm referred to as a monopolist or monopolistic firm. Characteristics of a monopolistic industry Monopoly Monopoly: a market structure in which there is only one seller of a good or service that has no close substitutes and entry to the market is completely blocked. The single seller or firm referred

More information

MARK SCHEME for the October/November 2012 series 2281 ECONOMICS

MARK SCHEME for the October/November 2012 series 2281 ECONOMICS CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Ordinary Level www.xtremepapers.com MARK SCHEME for the October/November 2012 series 2281 ECONOMICS 2281/23 Paper 2 (Structured Questions), maximum raw mark 80

More information

Refer to the given data. At the profit-maximizing level of employment, this firm's total labor cost will be: A. $16. B. $30. C. $24. D. $32.

Refer to the given data. At the profit-maximizing level of employment, this firm's total labor cost will be: A. $16. B. $30. C. $24. D. $32. 1. The more work people do, all other things unchanged, the: A) more their free time. B) greater their nonmarket use of time. C) less income they have. D) less leisure they have. 2. A wage will the leisure.

More information

Chapter 8 The Labor Market: Employment, Unemployment, and Wages

Chapter 8 The Labor Market: Employment, Unemployment, and Wages Chapter 8 The Labor Market: Employment, Unemployment, and Wages Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. If the price of a factor

More information

UNEMPLOYMENT AND ITS NATURAL RATE

UNEMPLOYMENT AND ITS NATURAL RATE 15 UNEMPLOYMENT AND ITS NATURAL RATE LEARNING OBJECTIVES: By the end of this chapter, students should understand: the data used to measure the amount of unemployment. how unemployment can result from minimum-wage

More information

A2 Economics Essential Glossary

A2 Economics Essential Glossary tutor2u A2 Economics Essential Glossary Author: Geoff Riley (Eton College) Tutor2u Limited 2004 All Rights Reserved tutor2u is a registered trade mark of Tutor2u Limited 2 Abnormal profit Abnormal profit

More information

MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0455 ECONOMICS

MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0455 ECONOMICS UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0455 ECONOMICS

More information

Lecture 10: THE AD-AS MODEL Reference: Chapter 8

Lecture 10: THE AD-AS MODEL Reference: Chapter 8 Lecture 10: THE AD-AS MODEL Reference: Chapter 8 LEARNING OBJECTIVES 1.What determines the shape of the aggregate demand (AD) curve and what factors shift the entire curve. 2.What determines the shape

More information

MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0455 ECONOMICS

MARK SCHEME for the May/June 2012 question paper for the guidance of teachers 0455 ECONOMICS UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education www.xtremepapers.com MARK SCHEME for the May/June 2012 question paper for the guidance of teachers

More information

GCE Economics. Mark Scheme for June Unit F583: Economics of Work and Leisure. Advanced GCE. Oxford Cambridge and RSA Examinations

GCE Economics. Mark Scheme for June Unit F583: Economics of Work and Leisure. Advanced GCE. Oxford Cambridge and RSA Examinations GCE Economics Unit F583: Economics of Work and Leisure Advanced GCE Mark Scheme for June 2016 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing

More information

PMT. GCE Economics. Unit F583: Economics of Work and Leisure. Advanced GCE. Mark Scheme for June Oxford Cambridge and RSA Examinations

PMT. GCE Economics. Unit F583: Economics of Work and Leisure. Advanced GCE. Mark Scheme for June Oxford Cambridge and RSA Examinations GCE Economics Unit F583: Economics of Work and Leisure Advanced GCE Mark Scheme for June 2016 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing

More information

MARKETS FOR LABOR Microeconomics in Context (Goodwin, et al.), 3 rd Edition

MARKETS FOR LABOR Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter 9 MARKETS FOR LABOR Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Overview This chapter deals with supply and demand for labor. You will learn about why the supply curve for

More information

Chapter 9: Labor Section 1

Chapter 9: Labor Section 1 Chapter 9: Labor Section 1 Key Terms labor force: all nonmilitary people who are employed or unemployed outsourcing: the practice of contracting with another company to do a specific job that would otherwise

More information

MARK SCHEME for the October/November 2015 series 2281 ECONOMICS

MARK SCHEME for the October/November 2015 series 2281 ECONOMICS CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge Ordinary Level MARK SCHEME for the October/November 2015 series 2281 ECONOMICS 2281/23 Paper 2 (Structured Questions), maximum raw mark 90 This mark scheme

More information

General Certificate of Education Ordinary Level 2281 Economics June 2012 Principal Examiner Report for Teachers

General Certificate of Education Ordinary Level 2281 Economics June 2012 Principal Examiner Report for Teachers ECONOMICS General Certificate of Education Ordinary Level Paper 2281/11 Multiple Choice Question Number Key Question Number Key 1 B 21 D 2 A 22 B 3 D 23 A 4 C 24 B 5 A 25 D 6 C 26 C 7 B 27 A 8 D 28 C 9

More information

Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam

Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam Economics 001.01: Principles of Microeconomics Spring 01 Instructor: Robert Munk April, 01 Final Exam Exam Guidelines: The exam consists of 5 multiple choice questions. The exam is closed book and closed

More information

PMT. GCE Economics. Unit F583: Economics of Work and Leisure. Advanced GCE. Mark Scheme for June Oxford Cambridge and RSA Examinations

PMT. GCE Economics. Unit F583: Economics of Work and Leisure. Advanced GCE. Mark Scheme for June Oxford Cambridge and RSA Examinations GCE Economics Unit F583: Economics of Work and Leisure Advanced GCE Mark Scheme for June 2015 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing

More information

Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level

Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level *2619652600* ambridge International Examinations ambridge International dvanced Subsidiary and dvanced Level EONOMIS 9708/32 Paper 3 Multiple hoice October/November 2018 dditional Materials: Multiple hoice

More information

DOWNLOAD PDF JOB SEARCH IN A DYNAMIC ECONOMY

DOWNLOAD PDF JOB SEARCH IN A DYNAMIC ECONOMY Chapter 1 : Job Search General Dynamics JOB SEARCH IN A DYNAMIC ECONOMY The random variable N, the number of offers until R is exceeded, has a geometric distribution with parameter p = 1 - F(R) and expected

More information

A Correlation of. To the Mississippi College- and Career- Readiness Standards Social Studies

A Correlation of. To the Mississippi College- and Career- Readiness Standards Social Studies A Correlation of To the 2018 Mississippi College- and Career- Readiness Standards Social Studies Table of Contents E.1... 3 E.2... 6 E.3... 7 E.4... 11 E.5... 15 E.6... 19 E.7... 24 E.8... 26 E.9... 28

More information

Outline. From last week: LF = E + U Growing:

Outline. From last week: LF = E + U Growing: BUEC 280 LECTURE 3 Outline From last week: LF = E + U Growing: n Growth of working age population n Growth in participation (women + youth) Employment (E) Growing increased aggregate labour supply and

More information

Introduction to Economics

Introduction to Economics Introduction to Economics ECONOMICS Chapter 5 Factor of Production Markets and Income Distribution contents 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Demand and Supply of the Factors of Production Equilibrium in

More information

UNEMPLOYMENT WHAT S NEW IN THE FOURTH EDITION: LEARNING OBJECTIVES: CONTEXT AND PURPOSE:

UNEMPLOYMENT WHAT S NEW IN THE FOURTH EDITION: LEARNING OBJECTIVES: CONTEXT AND PURPOSE: 28 UNEMPLOYMENT WHAT S NEW IN THE FOURTH EDITION: The Bureau of Labor Statistics definitions of employed, unemployed, and not in the labor force have been clarified. There is a new FYI box on Who Earns

More information

Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Edexcel (B) Economics A-level Theme 4: Making Markets Work 4.2 Market Power and Market Failure 4.2.2 Business regulation Notes Promoting competition through: o Preventing anti-competitive practices, and

More information

****** 1. How is the demand for an input dependent upon the demand for an output? 2. Given a wage, how does a firm decide how many people to hire?

****** 1. How is the demand for an input dependent upon the demand for an output? 2. Given a wage, how does a firm decide how many people to hire? 1 Chapter 4- Income distribution and factor pricing Syllabus-Input markets: demand for inputs; labour markets, land markets, profit maximisation condition in input markets, input demand curves, distribution

More information

2.2 Aggregate Demand and Aggregate Supply

2.2 Aggregate Demand and Aggregate Supply 2.2 Aggregate Demand and Aggregate Supply Aggregate Demand (AD): the total spending on all goods and services in an economy at a given price level over a period of time. The macroeconomic concept of aggregate

More information

EOCT Test Semester 2 final

EOCT Test Semester 2 final EOCT Test Semester 2 final 1. The best definition of Economics is a. The study of how individuals spend their money b. The study of resources and government c. The study of the allocation of scarce resources

More information

Capitalism: Meaning, Features, Merits and De-Merits

Capitalism: Meaning, Features, Merits and De-Merits Capitalism: Meaning, Features, Merits and De-Merits Meaning of Capitalism: Definition: Under capitalism, all farms, factories and other means of production are the property of private individuals and firms.

More information

Earnings and Discrimination

Earnings and Discrimination CHAPTER 19 Earnings and Discrimination Goals in this chapter you will Examine how wages compensate for differences in job characteristics Learn and compare the human-capital and signaling theories of education

More information

Microeconomics. Use the graph below to answer question number 3

Microeconomics. Use the graph below to answer question number 3 More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *

More information

Microeconomics. Use the graph below to answer question number 3

Microeconomics. Use the graph below to answer question number 3 More Tutorial at Microeconomics 1. Opportunity costs are the values of the: a. minimal budgets of families on welfare b. hidden charges passed on to consumers c. monetary costs of goods and services *

More information

Edexcel Economics (A) A-level Theme 1: Introduction to Markets and Market Failure 1.4 Government Intervention

Edexcel Economics (A) A-level Theme 1: Introduction to Markets and Market Failure 1.4 Government Intervention Edexcel Economics (A) A-level Theme 1: Introduction to Markets and Market Failure 1.4 Government Intervention Summary Notes 1.4.1 Government Intervention in Markets Government intervention to target market

More information

GCE Economics. Mark Scheme for June Unit F583: Economics of Work and Leisure. Advanced GCE. Oxford Cambridge and RSA Examinations

GCE Economics. Mark Scheme for June Unit F583: Economics of Work and Leisure. Advanced GCE. Oxford Cambridge and RSA Examinations GCE Economics Unit F583: Economics of Work and Leisure Advanced GCE Mark Scheme for June 2017 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing

More information

2. Why is a firm in a purely competitive labor market a wage taker? What would happen if it decided to pay less than the going market wage rate?

2. Why is a firm in a purely competitive labor market a wage taker? What would happen if it decided to pay less than the going market wage rate? Chapter Wage Determination QUESTIONS. Explain why the general level of wages is high in the United States and other industrially advanced countries. What is the single most important factor underlying

More information

www.onlineexamhelp.com www.onlineexamhelp.com CAMBRIDGE INTERNATIONAL EXAMINATIONS International General Certificate of Secondary Education MARK SCHEME for the May/June 2013 series 0455 ECONOMICS 0455/21

More information

Chapter 1: The Ten Lessons in Economics

Chapter 1: The Ten Lessons in Economics Textbook Notes Page 1 Chapter 1: The Ten Lessons in Economics Saturday, 25 May 2013 1:09 PM Economics: The study of how society manages its scarce resources Individual Decision-Making Lesson 1: People

More information

GE105 Engineering Economics and Cost Analysis

GE105 Engineering Economics and Cost Analysis 1. The fundamental economic problem faced by all societies is: a. unemployment b. inequality c. poverty d. scarcity 2. "Capitalism" refers to: a. the use of markets b. government ownership of capital goods

More information

Econ190 May 1, No baseball caps are allowed (turn it backwards if you have one on).

Econ190 May 1, No baseball caps are allowed (turn it backwards if you have one on). Heather Krull Final Exam Econ190 May 1, 2006 Name: Instructions: 1. Write your name above. 2. No baseball caps are allowed (turn it backwards if you have one on). 3. Write your answers in the space provided

More information

Fundamentals of Economics. 3 June Marking Scheme

Fundamentals of Economics. 3 June Marking Scheme Fundamentals of Economics 3 June 2015 Marking Scheme This marking scheme has been prepared as a guide only to markers. This is not a set of model answers, or the exclusive answers to the questions, and

More information

Edexcel Economics AS-level

Edexcel Economics AS-level Edexcel Economics AS-level Unit 1: Markets in Action Topic 7: Government Intervention in Markets 7.1 Methods of government intervention Notes The existence of market failure, in its various forms, provides

More information

Edexcel (A) Economics A-level

Edexcel (A) Economics A-level Edexcel (A) Economics A-level Theme 1: Introduction to Markets and Market Failure 1.4 Government Intervention 1.4.1 Government intervention in markets Notes Government intervention to target market failure:

More information

INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION

INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION ECO 181 (F) / Page 1 of 15 INTI COLLEGE MALAYSIA BUSINESS FOUNDATION PROGRAMME ECO 181: INTRODUCTORY ECONOMICS FINAL EXAMINATION: AUGUST 2003 SESSION SECTION A There are SIXTY questions on this paper.

More information

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from

Economics Challenge Online State Qualification Practice Test. 1. An increase in aggregate demand would tend to result from 1. An increase in aggregate demand would tend to result from A. an increase in tax rates. B. a decrease in consumer spending. C. a decrease in net export spending. D. an increase in business investment.

More information

Discuss the characteristics of a private enterprise system. Describe the economic freedoms that exist in a private enterprise system.

Discuss the characteristics of a private enterprise system. Describe the economic freedoms that exist in a private enterprise system. Every society develops a system for making decisions about how it will use its resources to meet the needs and wants of its people. Each of these economic systems must answer these three basic questions:

More information

Markets for Factor Inputs

Markets for Factor Inputs C H A P T E R 14 Markets for Factor Inputs Prepared by: Fernando & Yvonn Quijano CHAPTER 14 OUTLINE 14.1 Competitive Factor Markets 14.2 Equilibrium in a Competitive Factor Market 14.3 Factor Markets with

More information

AQA Economics A-level

AQA Economics A-level AQA Economics A-level Microeconomics Topic 8: Market Mechanism, Market Failure and Government Intervention in Markets 8.9 Government intervention in markets Notes The existence of market failure, in its

More information

FINAL EXAMINATION VERSION A

FINAL EXAMINATION VERSION A William M. Boal Signature: Printed name: FINAL EXAMINATION VERSION A INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators, calculators with alphabetical

More information

General Certificate of Education Ordinary Level 2281 Economics June 2011 Principal Examiner Report for Teachers

General Certificate of Education Ordinary Level 2281 Economics June 2011 Principal Examiner Report for Teachers ECONOMICS General Certificate of Education Ordinary Level Paper 2281/11 Multiple Choice Question Number Key Question Number Key 1 C 21 A 2 A 22 A 3 D 23 D 4 A 24 A 5 C 25 D 6 A 26 C 7 B 27 D 8 A 28 B 9

More information

Eight Labor Market Models - SUMMARY

Eight Labor Market Models - SUMMARY Eight Labor Market Models - SUMMARY 1 Eight Labor Market Models 1. Competitive labor market in a competitive product market 2. Competitive labor market in an imperfectly competitive product market 3. Monopsony

More information

Chapter 26 Answers to Short-Answer, Essays, and Problems

Chapter 26 Answers to Short-Answer, Essays, and Problems Chapter 26 Answers to Short-Answer, Essays, and Problems 1. Why is there a need for an aggregate demand and aggregate supply model of the economy? Why can t the supply and demand model for a single product

More information

causing MARGINAL PRODUCT OF LABOR to fall beyond some point. iv. PRODUCT PRICE : Because this is a competitive market, the PRODUCT PRICE = MARKET

causing MARGINAL PRODUCT OF LABOR to fall beyond some point. iv. PRODUCT PRICE : Because this is a competitive market, the PRODUCT PRICE = MARKET WAGE DETERMINATION I. A FOCUS ON LABOR a. The basic principles for labor also apply to other factors of production b. About 70% of all income in the U.S. flows to households in the form of wages and salaries.

More information

Mark Scheme (Results) Summer 2007

Mark Scheme (Results) Summer 2007 Mark Scheme (Results) Summer 2007 GCE GCE Economics (6352) Paper 1 Edexcel Limited. Registered in England and Wales No. 4496750 Registered Office: One90 High Holborn, London WC1V 7BH 6352 Mark Scheme

More information

EOCT Study Guide for Economics

EOCT Study Guide for Economics EOCT Study Guide for Economics 15 % of your total Grade. Review this study Guide and Notebook. This is a general guideline. You have to study the more specific concepts in your notes Domain I-Fundamental

More information

The study of how people choose to use scarce resources to satisfy unlimited wants is called

The study of how people choose to use scarce resources to satisfy unlimited wants is called Final Exam Review The study of how people choose to use scarce resources to satisfy unlimited wants is called Economics The benefit gained from the use of a good or services is called The benefit gained

More information

Economics in Sports. 1. The draft system exploits players so they get paid less than they would without the draft system.

Economics in Sports. 1. The draft system exploits players so they get paid less than they would without the draft system. Economics in Sports Sports Industry Let s use our knowledge of labor and product markets to analyze the economics of the sports industry (team sports only, not individual sports such as tennis, golf, race

More information

PMT GCE. Economics. Advanced GCE Unit F583: Economics of Work and Leisure. Mark Scheme for June Oxford Cambridge and RSA Examinations

PMT GCE. Economics. Advanced GCE Unit F583: Economics of Work and Leisure. Mark Scheme for June Oxford Cambridge and RSA Examinations GCE Economics Advanced GCE Unit F583: Economics of Work and Leisure Mark Scheme for June 2011 Oxford Cambridge and RSA Examinations OCR (Oxford Cambridge and RSA) is a leading UK awarding body, providing

More information

Microeconomics. Use the Following Graph to Answer Question 3

Microeconomics. Use the Following Graph to Answer Question 3 More Tutorial at www.dumblittledoctor.com Microeconomics 1. To an economist, a good is scarce when: *a. the amount of the good available is less than the amount that people want when the good's price equals

More information

AS Economics Governement Intervention and government failure

AS Economics Governement Intervention and government failure TheRevisionGuide.com Accelerating your potential Economics Revision AS Economics Governement Intervention and government failure Notes by: Apsara Sumanasiri Student Name : Date:. TheRevisionGuide (www.therevisionguide.com)

More information

Review Questions. Definitions. Choose the letter that represents the BEST response.

Review Questions. Definitions. Choose the letter that represents the BEST response. Review Questions Choose the letter that represents the BEST response. Definitions 1. The best definition of quasi-fixed costs is a. nonwage labor costs. b. hiring and training costs. c. costs that vary

More information

2. Three Key Aggregate Markets

2. Three Key Aggregate Markets 2. Three Key Aggregate Markets 2.1 The Labor Market: Productivity, Output and Employment 2.2 The Goods Market: Consumption, Saving and Investment 2.3 The Asset Market: Money and Inflation 2.1 The Labor

More information

THE UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT BA (Hons) ACCOUNTANCY SEMESTER 2 EXAMINATIONS 2017/18 PRINCIPLES OF ECONOMICS MODULE NO: ACC4015

THE UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT BA (Hons) ACCOUNTANCY SEMESTER 2 EXAMINATIONS 2017/18 PRINCIPLES OF ECONOMICS MODULE NO: ACC4015 THE UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT BA (Hons) ACCOUNTANCY SEMESTER 2 EXAMINATIONS 2017/18 PRINCIPLES OF ECONOMICS MODULE NO: ACC4015 TW24 Date: Tuesday 22 May 2018 Time: 10:00am to 12:00noon

More information

FIGHTING YOUTH UNEMPLOYMENT THROUGH INNOVATION AND TECHNOLOGY ECOSOC

FIGHTING YOUTH UNEMPLOYMENT THROUGH INNOVATION AND TECHNOLOGY ECOSOC FIGHTING YOUTH UNEMPLOYMENT THROUGH INNOVATION AND TECHNOLOGY ECOSOC INTRODUCTION TO THE TOPIC In most OECD (Organisation for Economic Cooperation and Development) countries, the average youth unemployment

More information

Review Questions. Unions and Collective Bargaining. Choose the letter that represents the BEST response.

Review Questions. Unions and Collective Bargaining. Choose the letter that represents the BEST response. 192 Ehrenberg/Smith Modern Labor Economics: Theory and Public Policy, Tenth Edition Review Questions Choose the letter that represents the BEST response. Unions and Collective Bargaining 1. Which of the

More information

chapter: Solution Factor Markets and the Distribution of Income

chapter: Solution Factor Markets and the Distribution of Income Factor Markets and the Distribution of Income chapter: 19 1. In 2010, national income in the United States was $11,722.6 billion. In the same year, 139 million workers were employed, at an average wage

More information

Unions and Labor Market Monopoly Power

Unions and Labor Market Monopoly Power 29 Unions and Labor Market Monopoly Power Learning Objectives After you have studied this chapter, you should be able to 1. outline the essential history of the labor union movement; 2. discuss the current

More information

LABOUR MARKET STUDY UNIT 11

LABOUR MARKET STUDY UNIT 11 LABOUR MARKET STUDY UNIT 11 STUDY OBJECTIVES Identify major differences between labour market and goods market. Explain the determinants of labour supply Explain how labour demand is derived Provide reasons

More information

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best

More information

INSTITUTE OF ACTUARIES OF INDIA

INSTITUTE OF ACTUARIES OF INDIA INSTITUTE OF ACTUARIES OF INDIA EXAMINATIONS 2 nd November 2015 Subject CT7 Business Economics Time allowed: Three Hours (10.30 to 13.30 Hrs.) Total Marks: 100 INSTRUCTIONS TO THE CANDIDATES 1. Please

More information

Learner Guide. Cambridge O Level Economics. Cambridge Secondary 2

Learner Guide. Cambridge O Level Economics. Cambridge Secondary 2 Learner Guide Cambridge O Level Economics 2281 Cambridge Secondary 2 Cambridge International Examinations retains the copyright on all its publications. Registered Centres are permitted to copy material

More information

SHORT QUESTIONS AND ANSWERS FOR ECO402

SHORT QUESTIONS AND ANSWERS FOR ECO402 SHORT QUESTIONS AND ANSWERS FOR ECO402 Question: How does opportunity cost relate to problem of scarcity? Answer: The problem of scarcity exists because of limited production. Thus, each society must make

More information

Understanding the implementation of the International Advanced Level in Economics June 2013

Understanding the implementation of the International Advanced Level in Economics June 2013 Understanding the implementation of the International Advanced Level in Economics June 2013 Final Draft Pearson Edexcel International Advanced Level (IAL) qualification in Economics Summary of content

More information

Microeconomics: MIE1102

Microeconomics: MIE1102 TEXT CHAPTERS TOPICS 1, 2 ECONOMICS, ECONOMIC SYSTEMS, MARKET ECONOMY 3 DEMAND AND SUPPLY. MARKET EQUILIBRIUM 4 ELASTICITY OF DEMAND AND SUPPLY 5 DEMAND & CONSUMER BEHAVIOR 6 PRODUCTION FUNCTION 7 COSTS

More information

Examiners Report/ Principal Examiner Feedback. Summer Pearson Edexcel International GCSE in Economics (4EC0) Paper 01

Examiners Report/ Principal Examiner Feedback. Summer Pearson Edexcel International GCSE in Economics (4EC0) Paper 01 Examiners Report/ Principal Examiner Feedback Summer 2015 Pearson Edexcel International GCSE in Economics (4EC0) Paper 01 Edexcel and BTEC Qualifications Edexcel and BTEC qualifications are awarded by

More information

ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided.

ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided. UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination 2015-16 ECONOMICS FOR BUSINESS NBS-4003Y Time allowed: 2 hours Answer ALL questions from Section A using the separate ANSWER

More information