A* Micro Essay Plans
LABOUR MARKET
P1: Labour market failure (market forces of S and D do not produce efficient resource
allocation):
-geographical and occupational
-markets experiencing an increase in demand for labour will face a more inelastic supply
curve due to immobility of labour
-therefore wages would be pushed to a higher level and costs to firms will increase causing
potential productive inefficiency.
- in a competitive labour market, demand is likely to be high/inelastic and supply low/inelastic
when wages are high. (Vice versa) demand will likely be low/elastic and supply high/elastic
when wages are low.
P2: Govt intervention
-govt training initiatives, regional policies can help achieve a more flexible labour force. In a
dynamic economy it is difficult for labour to keep up with changing requirements of the
market and for individuals to change occupation, and so it is best for govt to ↑flexibility. In the
SR the supply of labour is determined by changes in the wage rate on offer.
-subsiding geographical mobility (opportunity cost), removing employment protection
legislation
-temporal flexibility (in work hrs) functional flexibility (change duties within company)
numerical flexibility (adjust labour quantity to meet fluctuations of demand) wage flexibility
(rises or falls depending on profits) , locational flexibility (mobility between locations of
workforce)
-training and education to allow shifting of workers between sectors
-decrease unemployment benefits to increase incentive to work
EVAL-huge improvements in UK compared to EU member countries.
Other factors for flexibility of labour are global competition, changed structure of the
economy, changed composition of labour demanded, changed composition of the supply of
labour.
P3: Elasticity of Demand of labour
Elasticity of demand for labour is due to a change in the wage rate. Determinants:
If product has inelastic demand then demand for labour may be inelastic as wage increases
can be passed on to consumer.
If labour costs are a high % of total costs then changes in wage rates may mean demand is
elastic.
If there is ease of labour/capital substitution then labour demand will be elastic. May have a
large impact due to technological advancement; ↑wages will cause workers to be replaced
by machines and then demand for labour may fall by a greater percentage than wage rise.
EoS of complementary factors, if wages fall and EoS of factors used with labour are elastic
then demand will be elastic
, The more inelastic the demand, the more likely wages are to go up. Trade union bargaining
strength increases when demand for labour is elastic. Remember that in the SR, demand for
labour will be more inelastic, but may become more elastic in the LR due to tech advances.
P4: Maximising productivity
Specialisation:
Pros→
Increased output mean that if the product is price inelastic the total revenue will increase
More innovation means that products become more competitive against substitutes
Improved quality which can make product more competitive in the individual market
Increased productivity means more output per hour per worker, which contributes to
reducing unit labour costs (If productivity↑ at a faster rate than wages then unit labour costs
fall, leading to lower prices for consumers)
Economies of scale; unit costs fall as output increases, leading to lower prices for
customers. If product is price elastic, reducing prices will increase total revenue.
Cons→
Reliance on a narrow range of products as low mobility of labour
Specialist factor inputs are more expensive per unit, reliance on specialist
resources/suppliers which leads to factor immobility
Reduced flexibility of adjusting product due to changes in consumer preferences
Boredom of workers leads to lack of incentive and therefore lower productivity in the long
term.
P5: Migration
Can be a +ve force on the labour market.
The supply of labour is influenced by emigration/immigration of economically active people,
which can help UK skill shortages (which lead to lack of allocative and productive efficiency
in labour market)
Skill shortages mean either firms are unable to produce, or wages are bid up, leading to
increasing costs = lack of competitiveness in domestic/international markets.
The revenue gained from govt tax will ↑, which will help reduce the UK govt budget deficit
and be injected into the circular flow of income and improve infrastructure etc.
Migrants can help the economy expand without encountering inflationary pressure, or
reducing quality/quantity of labour.
EVAL: Those working on NMW may be disadvantaged, as migrants may be prepared to
work fro lower wages, meaning there is downward pressure on wages. There is also
pressure on housing, healthcare and education so govt spending will also ↑ due to influx of
REVIEW ANKI
OLIGOPOLY
Oligopoly outcomes
Premise with incentive to collude game theory
P1: Disadvantages - allocatively inefficient
LABOUR MARKET
P1: Labour market failure (market forces of S and D do not produce efficient resource
allocation):
-geographical and occupational
-markets experiencing an increase in demand for labour will face a more inelastic supply
curve due to immobility of labour
-therefore wages would be pushed to a higher level and costs to firms will increase causing
potential productive inefficiency.
- in a competitive labour market, demand is likely to be high/inelastic and supply low/inelastic
when wages are high. (Vice versa) demand will likely be low/elastic and supply high/elastic
when wages are low.
P2: Govt intervention
-govt training initiatives, regional policies can help achieve a more flexible labour force. In a
dynamic economy it is difficult for labour to keep up with changing requirements of the
market and for individuals to change occupation, and so it is best for govt to ↑flexibility. In the
SR the supply of labour is determined by changes in the wage rate on offer.
-subsiding geographical mobility (opportunity cost), removing employment protection
legislation
-temporal flexibility (in work hrs) functional flexibility (change duties within company)
numerical flexibility (adjust labour quantity to meet fluctuations of demand) wage flexibility
(rises or falls depending on profits) , locational flexibility (mobility between locations of
workforce)
-training and education to allow shifting of workers between sectors
-decrease unemployment benefits to increase incentive to work
EVAL-huge improvements in UK compared to EU member countries.
Other factors for flexibility of labour are global competition, changed structure of the
economy, changed composition of labour demanded, changed composition of the supply of
labour.
P3: Elasticity of Demand of labour
Elasticity of demand for labour is due to a change in the wage rate. Determinants:
If product has inelastic demand then demand for labour may be inelastic as wage increases
can be passed on to consumer.
If labour costs are a high % of total costs then changes in wage rates may mean demand is
elastic.
If there is ease of labour/capital substitution then labour demand will be elastic. May have a
large impact due to technological advancement; ↑wages will cause workers to be replaced
by machines and then demand for labour may fall by a greater percentage than wage rise.
EoS of complementary factors, if wages fall and EoS of factors used with labour are elastic
then demand will be elastic
, The more inelastic the demand, the more likely wages are to go up. Trade union bargaining
strength increases when demand for labour is elastic. Remember that in the SR, demand for
labour will be more inelastic, but may become more elastic in the LR due to tech advances.
P4: Maximising productivity
Specialisation:
Pros→
Increased output mean that if the product is price inelastic the total revenue will increase
More innovation means that products become more competitive against substitutes
Improved quality which can make product more competitive in the individual market
Increased productivity means more output per hour per worker, which contributes to
reducing unit labour costs (If productivity↑ at a faster rate than wages then unit labour costs
fall, leading to lower prices for consumers)
Economies of scale; unit costs fall as output increases, leading to lower prices for
customers. If product is price elastic, reducing prices will increase total revenue.
Cons→
Reliance on a narrow range of products as low mobility of labour
Specialist factor inputs are more expensive per unit, reliance on specialist
resources/suppliers which leads to factor immobility
Reduced flexibility of adjusting product due to changes in consumer preferences
Boredom of workers leads to lack of incentive and therefore lower productivity in the long
term.
P5: Migration
Can be a +ve force on the labour market.
The supply of labour is influenced by emigration/immigration of economically active people,
which can help UK skill shortages (which lead to lack of allocative and productive efficiency
in labour market)
Skill shortages mean either firms are unable to produce, or wages are bid up, leading to
increasing costs = lack of competitiveness in domestic/international markets.
The revenue gained from govt tax will ↑, which will help reduce the UK govt budget deficit
and be injected into the circular flow of income and improve infrastructure etc.
Migrants can help the economy expand without encountering inflationary pressure, or
reducing quality/quantity of labour.
EVAL: Those working on NMW may be disadvantaged, as migrants may be prepared to
work fro lower wages, meaning there is downward pressure on wages. There is also
pressure on housing, healthcare and education so govt spending will also ↑ due to influx of
REVIEW ANKI
OLIGOPOLY
Oligopoly outcomes
Premise with incentive to collude game theory
P1: Disadvantages - allocatively inefficient
