Economics: Trade Unions and Labor Practices

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a potential disadvantage of a strict division of labor in an economy?

Attraction of entrepreneurs

Improvement in working conditions

Labor immobility (correct)

Increased overall productivity

Which of the following is a main function of trade unions?

Improving non-wage benefits (correct)

Increasing unemployment rates

Stabilizing market prices

Reducing output in firms

Under what condition can trade unions argue for better wages?

When prices are falling

When productivity of workers increases (correct)

When sales of other firms decrease

When there is a surplus of labor

What strategy might workers use to intentionally decrease a firm's production rate?

Implementing an overtime ban Signup and view all the answers

What does collective bargaining primarily involve?

Negotiating wages and working conditions Signup and view all the answers

What is a primary advantage of collective bargaining for workers?

Better job security and representation Signup and view all the answers

What is a disadvantage of firms having to deal with trade unions?

Long decision-making processes Signup and view all the answers

How can trade unions positively impact the economy?

They ensure that the labor force is not exploited. Signup and view all the answers

Which classification of firms is involved in extracting raw natural materials?

Primary Signup and view all the answers

What is a key characteristic of public firms?

They provide essential services to the economy. Signup and view all the answers

What happens to the demand of a product when it has many substitutes?

The demand becomes elastic. Signup and view all the answers

Which of the following is a disadvantage faced by small businesses?

Higher operational costs Signup and view all the answers

Why might a small firm choose not to expand despite having demand for its products?

The market size may not warrant expansion. Signup and view all the answers

What is the primary effect of a producer lowering prices for a product with elastic demand?

Revenue increases. Signup and view all the answers

What could be a potential consequence for the economy if firms compromise with trade union demands?

Higher unemployment rates due to labor substitution Signup and view all the answers

Which factor contributes to the price elasticity of supply (PES)?

Production time. Signup and view all the answers

What is a characteristic of a free market economic system?

Resources are allocated by private individuals. Signup and view all the answers

What is a disadvantage of a free market economic system?

Production of demerit goods. Signup and view all the answers

In a mixed economic system, what role does the government primarily play?

To provide merit and public goods. Signup and view all the answers

What leads to market failure?

Social costs exceeding social benefits. Signup and view all the answers

What type of costs must a business pay even when no production is occurring?

Fixed costs Signup and view all the answers

How is average variable cost calculated?

Total variable costs divided by total output Signup and view all the answers

Which of the following best defines total revenue?

Total income from sales of goods and services Signup and view all the answers

What is one of the primary objectives of firms in highly competitive markets?

Survival Signup and view all the answers

What is the purpose of price skimming as a pricing strategy?

To maximize profits from early adopters Signup and view all the answers

Which advertising type aims to create consumer desire by emphasizing product appeal?

Persuasive advertising Signup and view all the answers

What can be a consequence of engaging in destruction or predatory pricing?

Establishing a monopoly Signup and view all the answers

Which of the following measures growth in a business?

Value of sales or output Signup and view all the answers

What is a common outcome of price wars between competing firms?

Lower prices for consumers Signup and view all the answers

Which equation represents total cost for a business?

Total fixed cost + total variable cost Signup and view all the answers

What is a primary reason why small firms might prefer to stay small?

Personalized services provided by small firms Signup and view all the answers

Which of the following is NOT a type of firm growth?

Vertical growth Signup and view all the answers

What is a potential disadvantage of horizontal integration?

Risk of diseconomies of scale Signup and view all the answers

Which type of integration occurs when firms producing different products merge?

Lateral integration Signup and view all the answers

Which of the following describes a risk of vertical integration?

Reduced operational flexibility Signup and view all the answers

What is an example of internal economies of scale?

Bulk purchasing of materials Signup and view all the answers

What type of diseconomy arises from the difficulty of communication within large firms?

Management diseconomies Signup and view all the answers

Which of the following is a factor that influences demand for factors of production?

Availability of skilled labor Signup and view all the answers

Which advantage is unique to capital-intensive production?

Consistency in output production Signup and view all the answers

What is a characteristic of labor-intensive production?

Flexibility to adjust to consumer demand Signup and view all the answers

What does increased productivity indicate?

More output from the same resources Signup and view all the answers

What is meant by 'diminishing returns to scale'?

Output fails to increase proportionately with input increases Signup and view all the answers

Which factor is least likely to influence the productivity of a firm?

Location of the business Signup and view all the answers

What is a disadvantage of labor-intensive production?

Higher long-term per unit costs Signup and view all the answers

What is one advantage of perfect competition?

Low prices due to fierce competition Signup and view all the answers

What is a significant disadvantage of monopolies?

Higher prices and reduced consumer sovereignty Signup and view all the answers

Which of the following is an impact of high levels of unemployment on the economy?

Higher public expenditure on welfare payments Signup and view all the answers

Which scenario best describes a pure monopoly?

A single seller controlling the entire market for a specific product Signup and view all the answers

What does economic growth typically refer to?

Increase in GDP over time Signup and view all the answers

How do firms in perfect competition respond to price increases?

They will likely lose customers to competitors. Signup and view all the answers

What is a typical government aim related to price stability?

Target an inflation rate around 3% Signup and view all the answers

Which characteristic is associated with firms operating in perfect competition?

Identification of price takers Signup and view all the answers

What does a government typically aim to achieve with macroeconomic stability?

Achieve full employment and sustainable growth Signup and view all the answers

What might result from wasteful competition among firms in perfect competition?

Duplication of items and waste of resources Signup and view all the answers

One of the roles of government as a producer is to provide which of the following?

Merit goods like healthcare and education Signup and view all the answers

What is a potential consequence of high inflation?

Reduction in consumers' ability to buy products Signup and view all the answers

Why might monopolies invest heavily in research and development?

To sustain abnormal profits despite lack of competition Signup and view all the answers

How do government capital expenditures impact an economy?

They invest in long-lived productive assets. Signup and view all the answers

Study Notes

Factors of Production & Rewards

Land: All natural resources in an economy
- Reward: Rent
- Supply is fixed as land doesn't increase
- Quality depends on soil type, fertility, and weather
- Geographically immobile, cannot be moved
- Occupationally mobile, can be used for various economic activities
Labor: All human resources in an economy
- Reward: Wages
- Supply depends on available workers and hours worked
- Quality depends on skills and education
- Occupational mobility depends on skills
- Geographical mobility depends on transport facilities and costs
Capital: All man-made resources in an economy
- Reward: Interest
- Supply depends on demand for goods and services, business performance, and savings
- Quality depends on the quality of goods produced using capital
- Mobility depends on the nature and use of capital
Enterprise: Ability to take risks and run a business
- Reward: Profit
- Supply depends on skills, education, corporate taxes, and regulations
- Quality depends on ability to satisfy and expand demand

The Law of Demand

An increase in price leads to a decrease in demand, and a decrease in price leads to an increase in demand.

Extension in Demand

Increase in demand due to changes in price

Contraction in Demand

Decrease in demand due to changes in price

Factors that Cause Shift in Demand Curve

Consumer incomes:
- Increased income = rightward shift
- Decreased income = leftward shift
Taxes on income:
- Increased taxes = leftward shift
- Decreased taxes = rightward shift
Price of substitutes:
- Increased price of substitutes = rightward shift
- Decreased price of substitutes = leftward shift
Changes in consumer tastes:
- Increased preference for a product = rightward shift
- Decreased preference for a product = leftward shift

The Law of Supply

Increase in price leads to an increase in supply, and a decrease in price leads to a decrease in supply.

Extension in Supply

Increase in supply due to changes in price

Contraction in Supply

Decrease in supply due to changes in price

Factors that Cause Shift in Supply Curve

Changes in cost of production
- ↓ cost of factors = rightward shift
- ↑ cost of factors = leftward shift
Subsidy = rightward shift
Quantity of resources available
- ↑ resources = rightward shift
- ↓ resources = leftward shift
Technological changes = rightward shift

Shortage & Surplus

Surplus: When price is above equilibrium price
Shortage: When price is below equilibrium price

PED Formula

PED = % change in quantity demanded / % change in price

Inelastic Demand

% change in quantity demanded is less than % change in price

Elastic Demand

% change in quantity demanded is more than % change in price

What Affects PED

Number of substitutes
Time period

PED & Revenue & Producers

Elastic demand: Lower prices to increase revenue
Inelastic demand: Raise prices to increase revenue

PES Formula

% change in quantity supplied / % change in price

What Affects PES

Production time
Resource availability

Features of Free Market Economic System

Resources owned and allocated by private individuals
Government refrains from regulating the market
Production based on the most demanded/needed goods
Producing for willing and able to pay consumers

Advantages of Free Market Economic System

Wide variety of goods and services
Firms respond to consumer demand
High efficiency due to maximizing profits by using resources efficiently

Disadvantages of Free Market Economic System

Only profitable goods and services are produced (public and merit goods may be neglected)
Demerit goods may be produced
Market failure can occur (unfair treatment, excessive harm or bad behavior by businesses)

Causes of Market Failure

Social costs exceeding social benefits
Over-provision of demerit goods
Under-provision of merit goods

Features of Mixed Economic System

Both public and private sectors exist
Government and market systems determine resource allocation

Advantages of Mixed Economic System

Government provides public goods, merit goods
Less inequality
Control of monopolies

Disadvantages of Mixed Economic System

Taxes and regulations can increase production costs and reduce work incentive

Ways to Correct Market Failure

Legislation and regulation
Direct provision of goods
Taxation
Subsidies

Drawbacks to Government Intervention

Political incentives
Inefficiency
Lack of incentives
Welfare effects of policies

Money

Medium of exchange of goods and services

Disposable Income

Income of a person after all income-related taxes and charges are deducted

Consumption

Buying of goods and services

Consumer Expenditure

Money spent on consumption

Factors Affecting Consumption

Disposable income
Wealth
Consumer confidence
Interest rates

Saving

Income not spent

Factors Affecting Saving

Saving for consumption
Disposable income
Interest rate
Consumer confidence

Borrowing

Borrowing of money from a person or institution

Factors Affecting Borrowing

Interest rate
Wealth

Spending Patterns Between Income Groups

Rich people spend, save, and borrow more
Poor people spend more of their disposable income on necessities

Payments for Labor

Time-rate wage
Piece-rate wage
Salary
Performance-related payments

What Affects Individuals' Choice of Occupation

Wage factors
Non-wage factors

Labor Demand

Number of workers firms demand at a given wage rate

Labor Supply

Number of workers available and ready to work at a given wage rate

Backward Bending Labor Supply Curve

When wage rate increases, supply of labor extends

Factors that Cause Shift in Labor Demand Curve

Consumer demand for goods and services
Productivity of labor

Price and productivity of capital

Factors that Cause Shift in Labor Supply Curve

Advantages of an occupation
Availability of education and training
Demographic changes

Why Do Different Jobs Have Different Wages?

Different education requirements
Risk involved
Unsociable hours
Lack of information about other job opportunities

Why Do Wages Differ Between People Doing the Same Job?

Regional differences in labor demand
Fringe benefits
Discrimination (race, gender, religion, age)
Length of service

Division of Labor

Dividing tasks in production to increase efficiency and productivity

Advantages to Workers

Skilled and experienced
Better future job prospects

Disadvantages to Workers

Monotony
Increased chance of errors
Increased chance of unemployment

Advantages to Firms

Increased productivity
Increased quality of products
Faster production

Disadvantages to Firms

Increased dependency (on workers)
Danger of overproduction

Advantages to Economy

Better utilization of human resources
Establishment of efficient firms
Higher profits from division of labor; attraction of Entrepreneurs

Disadvantages to Economy

Labor immobility
Reduction in creative instinct

Trade Unions

Organizations of workers aimed at promoting and protecting their interests

Functions of Trade Unions

Improvements in non-wage benefits
Defending employee rights
Improving working conditions
Improving pay

Collective Bargaining

Negotiation between unions and employers over pay and working conditions

When Can Trade Unions Argue for Better Wages?

Price rising (inflation)
Increase in sales and demand
Increased productivity of workers
Wages in similar firms increase

Industrial Disputes

Overtime ban
Go-slow
Strikes

Advantages to Workers

Workers benefit from bargaining power
Sense of unity and representation
Reduced chance of discrimination

Disadvantages to Workers

Potential for lower wages during strikes

Advantages to Firms

Time saved in negotiations
Better organization of workers
Improved worker morale

Disadvantages to Firms

Decisions can take longer
Conflicts with unions may increase costs
Reductions in output or revenue if unions strike

Advantages to Economy

Ensures labor force is not exploited
Protects workers' interests

Disadvantages to Economy

Impacts on total output
Possible unemployment

Classification of Firms

Primary
Secondary
Tertiary

Private/Public Firms

Public: Government-owned/run, no profit motive, provide essential services
Private: Privately-owned, aim to make profit, often highly demanded

Small Firms

Independently owned and operated, limited size and revenue

Advantages to Small Businesses

Independence
Control over operations
Flexibility

Disadvantages to Small Businesses

Higher costs
Lack of finance
Difficulty attracting experienced employees

Why Small Firms Still Exist

Market size
Specific products and services
Customization/personalization
Limited access to capital

Types of Firm Growth

Internal growth
External growth (Merger, Horizontal integration, Exploiting internal economies of scale etc.)

Diversification Risks

Spreading into different markets (to improve chances of survival in case of failure in one)
Inexperience / lack of knowledge; conflict in different management styles etc.

Economies of Scale

Cost saving from large-scale production

Internal Economies of Scale

Decisions made within a firm

Types of Internal Economies of Scale

Purchasing economies
Marketing economies
Financial economies
Technical economies
Risk-bearing economies

External Economies of Scale

Benefits a firm gets from the entire industry being large (access to skilled workers, ancillary firms etc.)

Types of Diseconomies of Scale

Management diseconomies
Inefficient running
Use of capital
Agglomeration diseconomies

External Diseconomies of Scale

Increasing costs of production due to increased output.

Differences in Production based on scale

External vs Internal
Diseconomies vs economies.

Demand for Factors of Production

Product demand
Availability of factors
Price of factors
Productivity

Labor-Intensive Production

Advantages: Flexibility, personal services, feedback, being essential
Disadvantages: Relatively expensive, inefficient, labor problems

Capital-Intensive Production

Advantages: Less errors, efficiency, consistent output
Disadvantages: Expensive, lack of flexibility

Production

Transformation of inputs into outputs

Factors that Influence Production

Demand for product
Prices and availability of factors of production
Capital
Profitability
Government support

Productivity Formula

Total output produced / Total input used

Productivity Increases When

More output produced from the same resources
Same output produced using fewer resources

Factors that Influence Productivity

Division of labor
Skills and experience of labor force
Workers' motivation
Technology
Quality of factors of production

Fixed Costs

Costs that remain constant regardless of output

Variable Costs

Costs that change with output

Average Fixed Cost

Total fixed cost / Total output

Average Variable Cost

Total variable cost / Total output

Average Cost

Total cost / Total output

Revenue

Total income from sales

Total Revenue

Number of units sold * Price per unit

Average Revenue

Total revenue / Number of units sold

Break-Even

Total revenue equals total costs

Firm Objectives

Survival
Profit
Growth

Price Competition

Competing to offer consumers the best possible prices

Non-Price Competition

Competing based on factors other than price (quality, warranty, etc.)

Pricing Strategies

Price skimming
Penetration pricing
Predatory pricing
Cost-plus pricing

Price that Producers Fix on a Product

Level and strength of consumer demand
Amount of competition
Cost of production
Profit margins

Perfect Competition

Many sellers and buyers
Identical products
Price takers
No barriers to entry

High Consumer Sovereignty

Wide variety of goods and services
Low prices due to competition
Efficient firms

Disadvantages of Perfect Competition

Wasteful competition
Misleading customers

Monopoly

Dominant firms with market power
Pure monopoly (single seller)
Able to influence prices

Disadvantages of Monopolies

Less consumer choice
Higher prices
Lower quality

Role of Government

Providing merit goods (healthcare, education)
Providing public goods (roads, parks)
Setting regulations to manage externalities
Managing taxes and subsidies.

Economic Growth

Increase in the amount of goods and services produced per person over time.

GDP

Total market value of all final goods and services produced within an economy in a given time period.

Causes of Economic Growth

Discovery of more resources
Investment in capital and infrastructure
Technological progress
Increase in quantity and quality of factors

Benefits of Economic Growth

Greater availability of goods and services
Increased employment
Higher living standards
Economic growth may further increase standard of living and well-being.

Drawbacks of Economic Growth

Technical progress may cause capital to replace labor, causing unemployment;
Disastrous for highly populated underdeveloped economies; pulling more people into poverty.

Sustainable Economic Growth

Rate of growth can be maintained without creating significant economic problems for future generations.

Recession

Phase where there is negative economic growth, real GDP.

Causes of Recession

Financial crises
Rise in interest rates
Fall in real wages
Fall in consumer confidence
Cuts in government spending
Black swan events

Consequences of Recession

Firms going out of business
Increased unemployment
Reduced income
Rise in poverty and inequality

Policies to Promote Economic Growth

Expansionary fiscal policies
Expansionary monetary policies
Supply-side policies

Effectiveness of Policies

Depends on the specific policy and economic conditions.

Labor Force

Working population
People not in the labor force

Dependent Population

People who depend on the labor force for goods and services; students, children, retirees.

Employment

Engagement in a trade, profession, or business

Unemployment

People actively looking for jobs but are not currently employed

Full Employment

All people who are willing and able to work are employed

Measuring Unemployment

Claimant count
Labour surveys
Unemployment rate.

Types of Unemployment

Frictional
Cyclical
Structural
Technological
Seasonal
Voluntary

Consequences of Unemployment

Loss of skills, reduced income, and decreased standards of living;
Poverty, depression, poor quality of life,
Lower purchasing power, decreased overall demand and reduced economic activity.

Policies to Reduce Unemployment

Expansionary policies to boost demand
Supply-side policies to increase workforce productivity (improve skills training, education etc.)

Inflation

Sustained rise in the price level of goods and services in an economy.

CPI (Consumer Price Index)

Measures the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.

Causes of Inflation

Demand-pull inflation
Cost-push inflation

Consequences of Inflation

Lower purchasing power
Exports lose competitiveness.
International payments problems.

Policies to Control Inflation

Contractionary monetary policy
Contractionary fiscal policy.

Deflation

General fall in the price level

Causes of Deflation

Aggregate supply exceeding aggregate demand
Fall in demand in the economy.

Specialisation

Concentrating production efforts on producing a limited variety of goods or services.

Absolute Advantage

One country is more efficient in producing a good/service than another.

Comparative Advantage

One country can produce a good/service at a lower opportunity cost than another.

Advantages of International Specialisation

Economies of scale, efficiency
Increased output while reducing costs.

Disadvantages of International Specialisation

Structural unemployment
Over-exploitation of resources
Threat of foreign competition
Over-specialization

Globalisation

Process of interaction and integration.

Multinational Corporations (MNCs)

Businesses operating in multiple countries.

Advantages to Home Country (of MNCs)

Job creation
Increased GSP (Gross Savings Product) from spending
Increased profits from sales

Extending business choice (sales)

Advantages to Host Country (of MNCs)

Job creation
Improved quality/training/skills of local workforce
Capital investment in production facilities/machinery.

Disadvantages to Home Country (due to MNCs)

Capital transfer to host countries
Potential for job losses

Disadvantages to Host Country (due to MNCs)

Threat of business closure
Exploitation of labour (lower wages, poorer conditions)
Lack of control over economic development/growth (by other countries).

Free Trade

No restrictions on trade between economies.

Advantages of Free Trade

Enables specialization
Increases consumer choice
Allows economies of scale

Disadvantages of Free Trade

Threatens jobs in developed countries
May harm developing countries' businesses if they cannot compete.

Protection

Usage of trade barriers (tariffs, quotas etc.) to restrict foreign market access, resulting in less competition for domestic firms but may limit consumer choices.

Types of Protection

Tariffs
Subsidies
Quotas
Embargoes

Reasons for Protection

Protect infant industries
Protect sunset industries
Protect strategic industries
Limit over-specialization

Consequences of Protection

Restrict consumer choice
Limit new revenue and employment opportunities
Protect inefficient domestic firms.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz explores key concepts related to trade unions, the division of labor, and their implications on economy and production. It covers the advantages and disadvantages of collective bargaining, as well as the role of firms and market dynamics. Test your understanding of how these elements interact within an economy.