1_Economics - Unit 3

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

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