Edexcel A Level Microeconomics with complete solutions

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 Q₁ 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 Overuse of non-renewable resources Functions of money Medium of exchange Allows g/s to be traded without need for double coincidence of wants Store of value Value of asset can be retrieved at later date -> people can save now to fund future spending Unit of account Allows value of items to be compared Standard of deferred payment Allows expression of value of debt -> people able to pay back loan in future with asset that is acceptable to creditor