Unit 3 : Microeconomics Decision Makers

• Money


  Anything that is generally accepted as a means of payment for goods and services.
• methods of payment


  cash, check, direct debit,debit card, credit card
• bartering 


  the process of paying for one good or service by means of exchanging it for another.
• problems with the bartering system

  1. some items are perishable
  2. good and services are difficult to divide into smaller amounts
  3. people need to know how much a product is worth
• double coincidence of wants


  when people meet to exchange one type of good for another but they have to agree to exchange the others offering
• Money


  A medium of exchange of goods and services
• Why we need money

  • We aren't self-sufficient - can't produce all our wants by ourselves, so there is a need for exchange
  • Barter system had problems like double coincidence of wants, perishable goods, indivisibility, lack of portability
• Characteristics of 'good money'

  Durable, uniform, divisible, portable, generally accepted
• Functions of money

  • Medium of exchange
  • Measure of value
  • Unit of account
  • Store of value
  • Means of deferred payment
• Banks


  Financial institutions that act as an intermediary between borrowers and savers
• Types of banks

  • Commercial banks
  • Central bank
• Functions of commercial banks

  • Accept deposits
  • Aid customers in payments
  • Give loans
  • Buy and sell shares
  • Provide insurance
  • Exchange foreign currencies
  • Provide financial planning advice
• Functions of central banks

  • Issue notes and coins
  • Manage government payments
  • Manage national debt
  • Supervise and control other banks
  • Lender of last resort
  • Manage gold and foreign currency reserves
  • Operate monetary policy
• Disposable income


  The income of a person after all income-related taxes and charges have been deducted
• Consumption


  The buying of goods and services
• Consumer expenditure


  The money spent on consumption
• People consume in order to satisfy their needs and wants and give them satisfaction
• Factors affecting consumption

  • Disposable income
  • Wealth
  • Consumer confidence
  • Interest rates
• Saving


  Income not spent (or delaying consumption until some later date)
• Factors affecting saving

  • Saving for consumption
  • Disposable income
  • Interest rates
  • Consumer confidence
  • Availability of saving schemes
• Interest


  The return on saving; the longer you save an amount and the higher the amount, the higher the interest received
• Borrowing


  The borrowing of money from a person/institution
• Factors affecting borrowing

  • Interest rates
  • Wealth/Income
  • Consumer confidence
• Ways of borrowing

  • Overdrafts
  • Bank loans
  • Hire purchases
  • Credit cards
• The richer people spend, save and borrow more amounts than the poor
• The poor spend higher proportions of their disposable income, especially on necessities, than the rich
• The poor save lesser proportions of their disposable income in comparison with the rich
• Time-rate wage


  Wage given based on the number of hours the employee has worked
• Overtime wages


  Wages given to workers who have worked extra number of hours, usually 1.5 times or even twice the normal time rate
• Piece-rate wage


  Wage given based on the amount of output produced. The more output an employee produced, the more wage he/she earns
• Salary


  Monthly payments made to workers, usually managers, office staff etc. usually in non-manual jobs
• Performance-related payments


  Payments given to individual workers or teams of workers who have performed very well
• Commissions


  Payments given to salespersons for selling to a targeted number of customers, a form of performance-related pay
• Wage factors

  • Pay rate
  • Prospect for performance-related payments and bonuses
• Non-wage factors


  • Hours of work
  • Holiday entitlements
  • Promotion prospects
  • Quality of working environment
  • Job security
  • Fringe benefits
  • Training opportunities
  • Distance from home to workplace
  • Pension entitlement
• Labour demand


  The number of workers demanded by firms at a given wage rate
• Derived demand


  The level of demand of a product determines that industry's demand for labour
• When the wage increases


  The demand for labour contracts (and vice versa)
• Labour supply


  The number of workers available and ready to work in an industry at a given wage rate
• When the wage rate increases

  The supply of labour extends, and vice versa