S-Cool Revision Summary

S-Cool Revision Summary


Average factor cost

This is the same as average cost in the product market, except we are now talking about labour, which is a factor of production, hence average factor cost. It is the cost, on average, of the labour employed by a firm. This is basically the wage rate. The wage rate is read off the firm's supply of labour curve, so the AFC curve is the supply of labour curve.


Ceteris paribus

This is a Latin phrase meaning 'all other things being equal'. It is used in economics because it would be difficult to assess the relationship between one variable and another without assuming that all other variables remain constant. It's a bit like having the 'control' in science experiments.


Closed shop

This refers to a (now illegal) situation where an individual could only work in a particular industry if he was a member of the relevant trade union. The union had control over membership, and so effectively had control over the numbers employed in the industry.


Consumer surplus

This is the intangible benefit that consumers derive from the fact that the price some of them are willing and able to pay (represented by the demand curve) is higher that the price that they actually have to pay.


Deindustrialisation

This is where economic activity moves away from manufacturing and into the service sector. It is the opposite of industrialisation. This process has been going on in the UK for a number of years now.


Derived demand

This is a term often used in the context of the labour market. The demand for labour is a derived demand because it is derived from the demand for the good that the labour is producing. If there is a huge drop in demand for cars, for example, then the demand for car workers is likely to fall as well (as we often hear in the News).


Economic rent

This refers to any earnings over and above a factor's (or worker's) transfer earnings. Textbooks often use the example of a footballer's earning. How much of a £30,000 a week wage is transfer earnings and how much is economic rent?


Economically active

If an individual is economically active then he is either in employment or he is willing and able to work and actively seeking work.


Elastic demand curve

This is a relatively flat demand curve where, in response to a given percentage change in price, the percentage change in demand is much higher. In the case of a labour market, the price is, of course, the real wage rate, and the demand is the demand for workers by employers.


Factors of production

The four factors of production are land, labour, capital and entrepreneurship. They are the inputs into the production process.


Homogenous

This literally means 'exactly the same'. In the context of the labour market, the word is used to describe the labour used in a perfectly competitive labour market. Every worker is assumed to be exactly the same (in particular, they are assumed to have the same skill level).


Income effect

When a worker is already earning a relatively high wage and there is a rise in the real wage rate, he may be tempted to take a couple of hours off each week. Once a worker is earning quite a lot of money, there comes a point where he wants to enjoy the money he has rather than work harder and harder for more and more money that he doesn't have time to spend! The substitution effect encourages the individual to work more hours following a wage rise, and the income effect encourages the individual to work fewer hours following a wage rise.


Inelastic demand curve

This is a relatively steep demand curve where, in response to a given percentage change in price, the percentage change in demand is much lower. In the case of a labour market, the price is, of course, the real wage rate, and the demand is the demand for workers by employers.


Labour

Labour refers to workers. Usually, the diagrams in the QuickLearns are labelled with 'units of labour'. Ten workers are also ten units of labour. The labour force, or working population, can be defined as the members of the population of working age (16 - 60 year old men and 16 - 60 year old women) who are in employment or unemployed but actively seeking work.


Marginal factor cost

This is the extra cost of employing the last unit of the factor in question. Of course, for the whole of this topic, the factor in question has been labour. In perfectly competitive labour markets, the MFC is simply the wage. In monopsonistic labour markets, the MFC will be much higher than the wage rate.


Marginal physical product

This is the physical output produced by the last worker employed. This is basically the same as marginal returns, a term used in the 'Costs and revenues' topic when referring to the law of diminishing marginal returns.


Marginal returns

This is another term for marginal physical product. It is the extra output produced by the last worker employed.


Marginal revenue product

This is the extra revenue earned by the firm from selling the output produced by the last worker employed. If the tenth worker makes five units of output, and the firm sells each of them for £10, then the MRP = £50


Monopoly

This is the least competitive form of market structure. A monopolist is the only firm in the industry, and so has total power. Monopolists tend to maximise profits to the detriment of efficiency.


Monopsony

Monopoly is the market structure where there is only one seller of the good in a product market. Monopsony is where there is only one buyer in the market. This term is usually used in the context of the labour market, where a monopsonist employer is the sole buyer of labour in a market.


New Deal

This has been one of the major policies of the Labour government. Put simply, it guarantees either training or a job to all young people. It has been so successful that the government is planning to extend the scheme to all those who are long-term unemployed, regardless of age.


Perfect competition

This is the most competitive form of market structure. Firms in perfect competition have numerous characteristics (see the topic of 'Market structure' for details). It is felt that this is the most efficient of all the market structures. Unfortunately, it is also the most unrealistic!


Picketing

During the miners' strike in the mid 80s, all miners were told to stop working. There was no ballot of the workers to see if they wanted to go on strike. Some of the workers wanted to keep earning money. Pickets were the workers on strike that stood at the entrance to the coal pits and tried to persuade the 'strike-breakers' not to go in and work. They were meant to ask nicely, but it often got quite violent.


Producer surplus

This is effectively profit. If a producer has a surplus over and above his costs, then he is making profit. Diagrammatically, it is the area above the supply curve, below the price and to the right of the y-axis.


Productivity

Productivity is the output per unit of input. Usually, labour is the input in question, so it is labour productivity that we are dealing with. This is output per unit of labour. Sometimes it is measured in terms of output per man-hour. Productivity can also be measured in terms of factor inputs or capital.


Real income

Real income refers to what one's income can actually buy, allowing for rises in the general price level. If one's income rises by 10% in a given year, but the average price level has risen by 10% as well, then you can't actually buy any more with this increase in nominal income - your real income has remained unchanged.


Real wage rate

The wage rate is the hourly rate paid by employers to their workers. The real wage rate is the same, but allowing for inflation. If the wage rate rose from £5 per hour to £5.50 per hour (a 10% rise), but prices rose, on average, by 10%, then this nominal 50p rise in the wage rate does not represent a rise in the real wage. The real wage rate has remained unchanged.


Strike

If workers go on strike then they withdraw their labour services on mass to put pressure on the employers to accept a pay deal or improve working conditions. Trade union leaders used to be able to call strikes if they felt the negotiations with employers were not going their way. Nowadays, the union leaders must ballot their members first (a secret ballot).


Substitution effect

In the context of the labour market, this refers to the fact that individuals will always substitute work for leisure as the real wage rate rises. This is because, as the wage rate rises, the cost of not working (i.e. having an extra hour of leisure) also rises.


Trade union

A trade union is an organisation of workers who get together because they find that they are more powerful collectively than as individuals. The main goals of a trade union are improving the working conditions of their members and negotiating above inflation wage rises with the employer.


Transfer earnings

This is the minimum amount that a factor must earn to remain in its present use. In this topic, the factor has been labour.