Year 13/A-level Edexcel Economics A Summary Notes for Theme 3: Business behaviour and the labour market and Theme 4: A global perspective
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YEAR 13 EDEXCEL ECONOMICS A A-LEVEL FULL CONTENT NOTES
Labour as a derived demand
Very long run: Technology changes
Law of diminishing marginal returns: As additional units of a variable factor are
applied to a fixed factor in the short run, additions to output will initially increase,
then decrease till negative.
Demand for labour: Quantity of a specific type of labour that firms are willing and
able to buy at a given wage rate over a specified period of time.
Movements along the labour demand curve are caused by changes in wage rates.
Since labour is a derived demand, shifts are caused by changes in determinants of
demand (PIRATESL) but also:
- Growth in economy
- Price of capital
- Wages internationally
- Productivity
- Employment taxes/subsidies
- Technology improvements
Wage Elasticity of Demand for Labour: Measures responsiveness of demand for
labour to a change in the wage rate. As with PED, take absolute value. Affected by:
- PED of g/s produced
- % of wage costs compared to firm’s total costs
- Ease with which labour can be substituted by other factors
- Time period
Fixed costs: Don’t change with output
Average fixed cost: Total Fixed Costs/Output
Variable Costs: Vary with output
,Average Variable Cost = Total Variable Costs/Output
Marginal Cost: Cost of producing one additional unit. = Change in total cost/ Change
in output
Factors that influence the elasticity of supply of labour:
- Qualifications and skills required
- Cost, nature, length of trading period
- Mobility of labour
- Ease of migration
- Level of employment
- Time
Factors that shift the labour supply curve:
- Quality of education/training
- Social factors – attitude to work/life balance
- Labour market participation rate
- Trade union strength
- Demographic factors
- Pecuniary factors – extra pay for overtime; changes in relative wages on offer
in substitute jobs
- Non-pecuniary factors: working conditions, job risk, need to work anti-social
hours, job security, career progression, chances to work overseas, quality of
training, pension schemes
Types of labour market failure:
- Labour shortages
- High unemployment
- Inappropriate wage rates
- Underemployment
Main causes of labour market failure:
- Discrimination
- Imperfect info leading to info failure
- Relatively small number of sellers (trade union)
- Relatively small number of buyers (government)
Occupational mobility: Ease with which labour can move between different
occupations
Geographical mobility: Ease with which labour can move between geographical
regions
, Power of trade unions depends on:
- PED for labour
- Level of membership/ union density – how much of labour force for that
industry do they represent?
- Profitability of that firm
- State of the economy
- Financial reserves of the union
- Support the workers have from general public
- Gov legislation towards labour market and trade union activity
- Experience, skills and ability of union officials in negotiations
Bilateral monopoly: Monopoly and Monopsony
Allocative efficiency: when P/AR = MC
Productive efficiency: Minimum point of average total cost curve
Dynamic efficiency:
X-inefficiency: AC moving down over time
Perfect Competition:
- Many buyers and sellers, with no market power to influence the price,
therefore are price takers.
- No barriers to entry or exit
- Perfect info
- Profit-maximising
- Homogeneous product so face horizontal demand curve where AR=MR=D.
Diagrams. Supernormal profits in SR, normal in LR
Shut-down point: When price/AR is greater than or equal to AVC, better to continue
production rather than stop it.
Monopolistic Competition:
- Differentiated products: small amount of brand loyalty
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