Theme 3

Why do firms tend to remain small?

a small market, limited access to finance, the choice of not wanting to grow

Why do firms tend to grow?

to meet objectives, respond to external and internal forces, gain competitive advantage, economies of scale

The principal agent problem

when the agent makes the decisions on behalf of the group (principal) favouring what the agent wants

Moral Hazard

when the individual is willing to take risks because the impact of failure is felt more by the owner

Private sector

owned and run by individuals or groups of individuals inclusing sole traders and PLCs

Public sector

owned or controlled by local or central government

Profit organisations

to make profit and maximise financial benefits for shareholders

Not-for-profit organisations

all profit made is used to support their aim of maximising social welfare

Limited companies

the owner and the company have separate legal entities

Private limited companies

can have one or more shareholders but cant sell shares to the public

Public limited companies

shares are freely transferable and anyone can buy them

Sole trader

an individual who owns and runs their own business

features of a sole trader

any profit is classed as income, has unlimited liability

Partnerships

2 to 20 people share the costs, risks and responsibilities of being in a business together

features of partnerships

has unlimited liability, each partner has a share of profit, most of each partner has a share in decision making

What is the formula for calculating the supply of labor?

The number of workers willing and able to work at the current wage rate multiplied by the number of hours they can work.

How does the wage rate affect the supply of labor?

An upward sloping supply curve shows that as wage rates increase, the number of workers willing and able to work also increases.

What demographic factors influence the supply of labor?

Population size, retirement and school leaving ages, number of university students, and immigration.

How does migration affect the supply of labor?

Migration tends to increase the supply of labor at all wage rates, especially at lower wage rates.

What non-monetary advantages can influence labor supply?

Factors such as lower costs of working (e.g., affordable childcare) and high benefits of working can increase labor supply.

How does leisure time influence labor supply?

Leisure time acts as a substitute for work, affecting individuals' choices between work and leisure.

What role do trade unions play in labor supply?

Trade unions can attract workers by defending employment rights, but may also discourage some from entering the labor market due to restrictions.

How do taxes and benefits affect labor supply?

High taxes and generous benefits may lead individuals to withdraw from the labor market.

What impact does training have on labor supply?

High training or qualification requirements can reduce labor supply, while government-subsidized training can increase it.

What is labor immobility?

Labor immobility occurs when workers cannot easily move to alternative jobs due to lack of skills or experience, leading to market failure.

What are the two types of labor immobility?

Geographical immobility and occupational immobility.

What causes geographical immobility?

Factors such as moving costs, imperfect information, and reluctance to leave family and friends.

What is occupational immobility?

When workers lack the skills required for different types of work, often due to skills shortages or insufficient education.

What monetary factors influence labor supply?

Wage levels, as workers seek to maximize their earnings.

What non-monetary factors influence labor supply?

Fringe benefits, working conditions, job satisfaction/dissatisfaction, and economic welfare from leisure time.

What happens if labor is immobile in response to changes in supply and demand?

Markets may struggle to clear, leading to distortions and delays in reaching market equilibrium.

What is the relationship between demand and supply in labor markets?

If demand increases but supply is fixed, it can lead to market distortions.