3.5

• What are the factors affecting Demand for Labour

  Population of firm

  Income of firm

  Complementary Costs e.g. Maternity leave

  Taste for goods (derived demand)

  Substitute e.g. machinery
• What are the factors affecting PED of labour

  Ratio of cost for a firm

  Elasticity of the good

  Time

  Substitutability
• What are the factors influencing Supply of Labour

  Income/Substitution effect

  Substitute profession

  Entry barriers

  Migration
• What are the factors influencing PES of labour

  Geographical and occupational immobility
• Explain geographical immobility

  When workers find it difficult to move jobs from one region to another
• Explain occupational immobility

  When workers find it difficult to move from one job to another
• What are the factors which could cause geographical immobility

  Lack of knowledge of jobs in other areas

  High price of housing/Cost of living in other areas

  Language barriers

  Poor transport infrastructure

  Family in existing area
• What are the factors which could cause occupational immobility

  Skills may not match jobs available

  Barriers to entry

  Long periods of time to train towards a new profession
• What is the Public sectors

  the sector of the economy which is controlled by government
• What is the role of the competition and markets authority (CMA)

  Promote competition for benefit of consumers

  Investigate mergers

  Investigate abuse of market power

  Take actions against anti-competitive behaviour
• Explain the impact of merger prevention by the CMA

  Increased choice due to decrease monopolies

  Lower prices

  Lower Costs

  Innovation to continue
• Explain how price capping can be used to control monopoly power

  Allow prices to increase at the rate of RPI (inflation) but subtract off amount of reflecting the efficiency gains that the regulators believe can be achieved by the firm i.e. RPI subtract X
• Explain the impact of price capping

  Preventing firms making excessive supernormal profits at the expense of consumers

  Cutting price of necessity goods, thus increasing a affordability for household

  Incentive to lower cost (remove X inefficiencies etc)

  Less likely to innovate due to decrease in supernormal profit

  Intervention may distort market, and therefore firms may lead the market. This leads to government failure.
• Explain profit regulation

  The government sets a max percentage level of profits
• What are the advantages of profit regulation?

  Prevent excessive supernormal profits

  Decrease prices for consumers
• What are the costs of profit regulation?

  No incentive to cut costs, If they cover costs and earn a profit on capital employed it creates no gain to the monopolist to reduce costs as they are covered by the consumer

  Sort of like limit pricing, firms may not want to join the market
• What are the evaluation of profit regulation

  Asymmetric information firms may not give the correct amount of operating cost

  Regulator capture, regulators feel sympathy for firms
• What are the impacts of quality standards, performance targets

  Firms may argue to get softer target

  Firms may leave market if target gets too high
• Explain nationalisation and the benefits of using it to control monopolies

  If the firm is privately owned, they would want to profit maximise however, if the firm is state owned, they would be allocatively efficient however, they would be making a loss
• What are the impacts of nationalisation?

  Loss comes at cost which is covered by the government by tax. However, this comes at the expense of workers through tax.
• Explain how to promotion of small businesses help enhanced competition

  They could provide training and grants to potential new entrepreneurs

  They could encourage the growth of existing small businesses through tax incentives or subsidies
• Explain how deregulation helps enhance competition

  • Remove government controls in order to promote competition and improve efficiency through lower cost
  • Can lead to problems of private firms, focusing only and profitable sections of the industry
• Explain how competitive tendering helps enhance competition

  • If the government contracts out a good or service to the same company every time, then it is effectively creating a monopoly eg. Government invites bids from private sector firms and awards a contract to the firm offering the lowest price
• Explain how privatisation helps enhanced competition

  It does not reduce monopoly power, but could create a greater incentive to cut costs and inefficiency

  If the cost reduction outweigh the extra profit that is captured then consumers may gain
• Explain how governments can protect suppliers and employees by using restrictions on monopoly power of firms

  • Legislation provides rules on health and safety employment contracts, maximum working hours, redundancy rules and trade union rules. Farmers can be prosecuted for breaking these rules.
  • Governments could provide greater scope for trade unions to operate, thereby providing greater representation for workers concern
  • Nationalisation could lead to greater job security