1_1_1_Economics - Unit 3

1_1_1_Economics - Unit 3

1. Market structures

   • Oilgopoly
     • Price rigidity= stick prices
     • Concentration ratio
     • Kinked-demand curve
     • Price wars, Collusion
     • market is dominated by a few firms, high barriers
       • CMA moderate price wars
   • Monopolistic Competition
     • Profit maximisation (MC=MR)
     • Open market with few barriers, lots of differentiated products, many firms
   • Monopoly
     • One firm, high barriers, price makers
   • Barriers to entry
     • Natural= E.O.S
     • Artificial= Patents, marketing expenditure
     • First mover advantage
   • Perfect competition
     • Homogenous goods, No Barriers-to -entry
     • Buy/Sell as much as you want, Price takers
   • Contestable Markets
     • a market where there is the opportunity for new firms to enter
       • equal playing ground- same tech, no B2E
   • Price Discrimination
     • charge different prices to different people
   • Aims of businesses
     • Growth
     • Survival
     • Profit Max.

2. The Labour Market

   • Wages
     • NLW/NMW
       • Fiscal benefits: Higher tax, NI contributions
       • Work incentive, motivation and security
         • Higher disp. income= +ve multiplier
       • Reduced profits
         • Increased unemployment ~60,000
           • No regional difference indicators
   • Unemployment
     • higher wage= lower employment, causes excess supply
       • globalisation
       • Trade Unions= group of people who join together to maintain and improve workplace conditions
         • collective bargaining
         • Membership falling - expensive, law changes mean dont need to join, more PT staff
           • Firms may 'bully' unions, as they hire so many people (reqs. regulation)
         • Union density= no. of unions in a country
   • MRP= Marginal Revenue Product (MRP*price)
     • only hire at this rate, otherwise no marginal benefit
       • law of diminishing returns
   • Monopsony
     • when theres only one buyer in the labour market
       • wages and no. employed is lower in monopsony
         • no other employers so have to accept that wage
           • If one persons wage goes up, so does everyone elses
       • pays less than MRP wage rate
   • Labour Supply
     • Individual supply of labour= individuals can cause supply curve to bend
       • Substitution effect= choose leisure over work?
       • Income effect= higher wages allows for better qual. of life and less work
       • Net advantage= The sum of monetary and non-monetary benefits of working e.g. socialising
       • Changes in supply: -expectations (live longer) -migartion
   • Demand for Labour
     • falling in industry- tech/robots, increasing it highly skilled sectors
       • elasticity of demand for labour= % of labour costs/ % of total costs
         • elastic demand= factory workers
         • inelastic= doctors (cant replace them easily)
           • higher prices
       • known as labour substitution
   • Labour in a Perfectly Competitive Market
     • Lots of job opportunities/employers, perfect info on products, wages and job vacancies
       • Marginal Physical Product: How many more products are made per 1 increase in staff. MRP= Wage. MRP < Wages= Hire less, MRP > Wages= Hire more

3. Market Failure

   • When markets operate inefficiently, or not at all. There’s a dead-weight loss of economic welfare
     • Causes: Geographical immobility work disincentive, Workplace discrimination, Monopsony power over the workforce
       • labour exploitation
     • gov. intervention= legislation, encourage apprenticeships and affordable homes
     • Labour market flexibility
       • PT, FT, Term-time, flexi-time
       • Benefits employers(staff retention), government(FDI), but also has costs(tech sometimes fails)
   • Poverty
     • Caused by Unemployment, Poor education/skills, disability, born into it
     • Lorenz curve- wide gap more inequality
     • Gini-coefficient- lower better (uk 0.34)
       • Relative= below 60%
         • Absolute= Severe
     • pay gap= JSA, working tax credits, child benefits
       • child must be in education, creates dependancy?
     • Income= The flow of money a person/household receives in a year -wages, benefits
       • Varies by age, region, gender
       • income inequality: Due to different opportunities, poverty, regionality
       • ideas to reduce inequality: Progressive taxes, wage caps on CEOs, increase NMW, provide skill/training
     • Wealth= The stock of everything which has the value to that person/household owns at a particular point in time
       • capital gains= rent from owned houses (more likely down South)
       • inheritance passed down genereations
       • wealth taxation= on the wealthy, goes to gov. but often avoided due to loopholes
   • Merit/Demerit Goods
     • Merit
       • Merit= Pos, externalities: Under consumed, Under provided
       • Intervention: Taxes, Promos, Min prices, Laws -e.g. age restriction
     • depends on value judgement
     • Demerit
       • Demerit= neg. externalities: over-provided, over-consumed
       • Intervention: Max prices, subsidies, gov. provision, promos
     • Reasons for consumption/provision: Imperfect info. failure & ability to make profits
     • Quasi-public= Semi-rivarly, Semi-excludable
   • Privatisation
     • the transfer of assets from the public sector to the private sector
       • Pros: Boosts consumption - e.g. telecons, More responsive to customer needs, ST revenue boost for Gov
       • Cons: Only a one-off profit boost, Could lead to the distortion of already allocative efficient state-owned natural monopolies -e,g Water, Doesnt always lead to more competition?
       • e.g. Royal Mail- too many shares too cheaply, M6 Toll
   • Economic Liberisation
     • Open up markets to private ownership and competition= reducing gov. intervention in the economy
       • Contractulisation= Services are left to be provided by private firms e.g. road surfacing
     • PPP= Public-private partnership
       • PFI= Private Finance Investments- build schools, hospitals
         • Provides jobs, encourages FDI and means gov. dont have to pay until its done, however quality is often compromised for costs, has higher interest rates
   • Permits
     • Tackle pollution- Carbon credits can be sold/traded
       • Pros: Small sustained decrease, reinvest money into Green tech
       • Cons: Can be sold too much/cheaply= ineffective, fines can be cheaper, need more radical LT plan
       • gov provided= inelastic supply

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