Edexcel
A
Level
Microeconomics
Factors
influencing
demand
for
labour
Demand
for
final
product
-
if
rise
in
output
>
increase
in
productivity
Relative
productivity
of
labour
to
capital
-
substitution
effect
£3,000
subsidy
for
hiring
unemployed
18-24
y.o.
=
half
UK's
youth
minimum
wage
Factors
influencing
supply
of
labour
Cost
of
living
Cost
of
gaining
skills
UK
uni
fees
capped
at
£9,250
per
year
Number
of
workers
UK
raises
state
pension
age
from
67
to
68
Market
failures
in
labour
markets
Geographical
immobility
-
inability
of
labour
to
move
from
one
location
to
another
Occupational
immobility
-
inability
of
labour
to
move
form
one
industry
to
another
Employer
monopsony
->
wage-setting
power
->
wage
lower
than
equilibrium
10%
decline
in
real
wages
of
NHS
worker
since
start
of
recession
Solutions
to
market
failures
in
labour
market
Education
and
training
Housing
market
reform
Wage-setting
UK
raises
NMW
from
£7.50
to
£7.83
Evaluate
solutions
to
market
failures
in
labour
market
If
increases
elasticity
of
S(labour)
->
lower
wages
If
D(labour)
if
elastic
->
min
wage
will
increase
unemployment Explain
wage
determination
in
competitive
labour
market
Firms
are
wage
takers
->
set
W
where
S
=
D
S(labour)
is
perfectly
elastic
->
AC
=
MC
->
max
profits
at
MRP
=
MC
->
employ
Q
₁
Positive
statement
(def.)
Evidence
based
statement
which
can
be
proven
true
or
false
Normative
statement
(def.)
Value
judgment
which
cannot
be
tested
Scarcity
(def.)
Lack
of
resources
to
fulfil
everyone's
wants
and
needs
Renewable
resources
(def.)
Resources
which
can
be
replenished
over
time
Non-renewable
resources
(def.)
Resources
which
cannot
be
replenished
once
they
are
used
PPF
(def.)
Max
amount
of
two
goods
that
can
possibly
be
produced
in
economy
with
given
set
of
resources,
time
and
technology
Capital
goods
(def.)
Useful
not
in
themselves
but
for
goods
and
services
they
can
help
produce
in
future
Opportunity
cost
(def.)
Value
of
next
best
alternative
forgone
Pareto
efficiency
(def.)
State
of
allocation
of
resources
in
which
it
is
impossible
to
make
any
one
party
better
off
without
making
at
least
one
party
worse
off Allocative
efficiency
(def.)
When
value
consumers
place
on
good
or
service
(reflected
in
price)
=
cost
of
resources
used
up
in
production
Specialisation
(def.)
When
worker
concentrates
on
performing
specific
task
or
narrow
range
of
tasks
in
production
process
Division
of
labour
(def.)
Separation
of
production
process
into
individual
tasks
Advantages
of
specialisation
(micro)
Workers
gain
skills
in
narrow
range
of
tasks
->
higher
productivity
Workers
specialise
in
tasks
to
which
they
are
best
suited
->
higher
productivity
Worker
isn't
constantly
changing
tasks
->
higher
productivity
Division
of
labour
->
cost
efficient
to
provide
workers
with
specialists
tools
->
higher
capital
productivity
Disadvantages
of
specialisation
(micro)
Monotony
->
boredom
->
lower
productivity
Lack
of
diversification
->
lower
tolerance
to
external
factors
->
higher
risk
factor
Workers
less
transferable
between
jobs
Workers
more
replaceable
by
machinery
Advantages
of
specialisation
(macro)
Comparative
advantage
theory
Disadvantages
of
specialisation
(macro)
Over-dependence
on
commodity
+
Prebish-Synger
hypothesis
->
deterioration
in
terms
of
trade
Pressure
to
cut
costs
->
race
to
bottom
->
lower
wages,
compromised
health&safety
A
Level
Microeconomics
Factors
influencing
demand
for
labour
Demand
for
final
product
-
if
rise
in
output
>
increase
in
productivity
Relative
productivity
of
labour
to
capital
-
substitution
effect
£3,000
subsidy
for
hiring
unemployed
18-24
y.o.
=
half
UK's
youth
minimum
wage
Factors
influencing
supply
of
labour
Cost
of
living
Cost
of
gaining
skills
UK
uni
fees
capped
at
£9,250
per
year
Number
of
workers
UK
raises
state
pension
age
from
67
to
68
Market
failures
in
labour
markets
Geographical
immobility
-
inability
of
labour
to
move
from
one
location
to
another
Occupational
immobility
-
inability
of
labour
to
move
form
one
industry
to
another
Employer
monopsony
->
wage-setting
power
->
wage
lower
than
equilibrium
10%
decline
in
real
wages
of
NHS
worker
since
start
of
recession
Solutions
to
market
failures
in
labour
market
Education
and
training
Housing
market
reform
Wage-setting
UK
raises
NMW
from
£7.50
to
£7.83
Evaluate
solutions
to
market
failures
in
labour
market
If
increases
elasticity
of
S(labour)
->
lower
wages
If
D(labour)
if
elastic
->
min
wage
will
increase
unemployment Explain
wage
determination
in
competitive
labour
market
Firms
are
wage
takers
->
set
W
where
S
=
D
S(labour)
is
perfectly
elastic
->
AC
=
MC
->
max
profits
at
MRP
=
MC
->
employ
Q
₁
Positive
statement
(def.)
Evidence
based
statement
which
can
be
proven
true
or
false
Normative
statement
(def.)
Value
judgment
which
cannot
be
tested
Scarcity
(def.)
Lack
of
resources
to
fulfil
everyone's
wants
and
needs
Renewable
resources
(def.)
Resources
which
can
be
replenished
over
time
Non-renewable
resources
(def.)
Resources
which
cannot
be
replenished
once
they
are
used
PPF
(def.)
Max
amount
of
two
goods
that
can
possibly
be
produced
in
economy
with
given
set
of
resources,
time
and
technology
Capital
goods
(def.)
Useful
not
in
themselves
but
for
goods
and
services
they
can
help
produce
in
future
Opportunity
cost
(def.)
Value
of
next
best
alternative
forgone
Pareto
efficiency
(def.)
State
of
allocation
of
resources
in
which
it
is
impossible
to
make
any
one
party
better
off
without
making
at
least
one
party
worse
off Allocative
efficiency
(def.)
When
value
consumers
place
on
good
or
service
(reflected
in
price)
=
cost
of
resources
used
up
in
production
Specialisation
(def.)
When
worker
concentrates
on
performing
specific
task
or
narrow
range
of
tasks
in
production
process
Division
of
labour
(def.)
Separation
of
production
process
into
individual
tasks
Advantages
of
specialisation
(micro)
Workers
gain
skills
in
narrow
range
of
tasks
->
higher
productivity
Workers
specialise
in
tasks
to
which
they
are
best
suited
->
higher
productivity
Worker
isn't
constantly
changing
tasks
->
higher
productivity
Division
of
labour
->
cost
efficient
to
provide
workers
with
specialists
tools
->
higher
capital
productivity
Disadvantages
of
specialisation
(micro)
Monotony
->
boredom
->
lower
productivity
Lack
of
diversification
->
lower
tolerance
to
external
factors
->
higher
risk
factor
Workers
less
transferable
between
jobs
Workers
more
replaceable
by
machinery
Advantages
of
specialisation
(macro)
Comparative
advantage
theory
Disadvantages
of
specialisation
(macro)
Over-dependence
on
commodity
+
Prebish-Synger
hypothesis
->
deterioration
in
terms
of
trade
Pressure
to
cut
costs
->
race
to
bottom
->
lower
wages,
compromised
health&safety
