Households and Workers

What are households?

• Consumers of goods and services and suppliers of factors of production

What is disposable income?

• The amount of income that households have left to spend or save after paying direct taxes (like income tax) and receiving benefits (like pensions or welfare payments)

What is consumption?

• The total spending by households on goods and services to satisfy their wants and needs

What is real disposable income? 

• The purchasing power of disposable income, taking into consideration inflation

What is inflation?

• A sustained rise in the general price level of goods and services in an economy over time, meaning that money buys fewer goods and services

What is saving?

• When people delay consumption until some later time when they withdraw and spend savings plus any interest

What is the saving ratio and how do you calculate it?

• The percentage of disposable income that households save rather than spend on consumption

• Calculation: Savings - Disposable Income x 100

What is dissaving?

• When households spend more than their disposable incomes, often by using past savings or borrowing money

What is wealth?

• The total value of assets (such as houses, savings, shares, and possessions) owned by a person or household, minus any debts owed

What is consumer confidence?

• A measure of how optimistic consumers feel about the future of the economy and their personal finances

What are interest rates?

• The cost of borrowing money or the reward for saving money

What is division of labour?

• When the production process is split into different tasks, and each worker specializes in one particular task

List and explain factors affecting consumer expenditure

• Disposable income

• Wealth

• Consumer confidence

• Interest rates

• Age

• Gender

• Different tastes

• Real incomes have risen

• People work fewer hours than they did years ago

• Social attitudes have changes

• Population trends

• People have become more health conscious

• Concern for the environment is growing

• Technology is advancing rapidly

Why do wages differ between different occupations?

• Different abilities and qualifications

• “Dirty” jobs and unsociable hours

• Job satisfaction

• Lack of information about other jobs and wages

• Labour immobility

• Fringe benefits

Why do wages differ within the same occupation?

• Regional differences in labour demand and supply

• Length of service

• Local pay agreements

• Non-monetary rewards differ

• Discrimination

List and explain factors that affect saving patterns

• Saving for future consumption

• Interest rates

• Consumer confidence

• Availability of saving schemes

List and explain factors that affect borrowing

• Interest rates

• Wealth

• Consumer confidence

• Ways of borrowing and availability of credit

List and explain non-wage factors when choosing an occupation

1. Hours of work

   • More hours of work: shift left in supply

   • Less hours of work: shift right in supply

2. Holiday entitlement

   • More holiday entitlement: shift right in supply

   • Less holiday entitlement: shift left in supply

3. Promotion prospects (opportunities for promotion)

• Promotion prospects refers to the opportunity for workers to be promoted within a company

  • More promotion prospects: shift right in supply

  • Less promotion prospects: shift left in supply

1. Flexible working arrangements

   • More flexible working arrangements: shift right in supply

   • Less flexible working arrangements: shift left in supply

2. Qualifications required

   • More qualifications required: shift left in supply

   • Less qualifications required: shift right in supply

3. Quality of working environment

   • Higher quality of working environment: shift right in supply

   • Less quality of working environment: shift left in supply

4. Job security

   • More secure: shift right in supply

   • Less secure: shift left in supply

5. Job satisfaction

   • More satisfying: shift right in supply

   • Less satisfying: shift left in supply

6. Fringe benefits (such as health insurance, paid time off, retirement plans..)

   • More fringe benefits: shift right in supply

   • Less fringe benefits: shift left in supply

7. Training opportunities

   • More training opportunities: shift right in supply

   • Less training opportunities: shift left in supply

8. Pension entitlement

   • Pension entitlement: shift right in supply

   • No pension entitlement: shift left in supply

9. Interesting and varied tasks

   • More interesting and varied tasks: shift right in supply

   • Less interesting and varied tasks: shift left in supply

10. Distance or time it takes to travel to and from work

    • More distance or time: shift left in supply

    • Less distance or time: shift right in supply

List and explain factors affecting demand of labour

• Changes in consumer demand for goods for labour

• Changes in the productivity of labour

• Changes in the price and productivity of capital

• Changes in non-wage employment costs

List and explain factors affecting supply of labour

• Changes in the net advantages of an occupation

• Changes on the provision and quality of education and training

• Demographic changes

List and explain advantages of division of labour

1. More goods and services can be produced

• Division of labour increases skill and speed

2. Full use made of employees abilities

• Increase skills and become more productive

3. Time is saved

• More productive, less training needed

4. Allows use of machinery

• It becomes worthwhile to use machinery and allows further saving of time and effort

List and explain disadvantages of division of labour

1. Work may become boring (monotony)

• Workers doing the same thing are likely to become bored, meaning work quality may go down

2. Workers may feel alienated

• Workers may feel undervalued and lose pride in their work because they can’t see final result of their efforts

3. Products become too standardized

• Whether or not this is a disadvantage is up to peoples own opinion

4. Firms are unable to use labour flexibly

• If workers are not multi-skilled, they are unable to cover staff absences

Explain the backward bending supply curve of labour

• As wages rise, workers may initially choose to work more

• At a certain point, workers might decide they earn enough money and would like more leisure time

  • As wages increase, they work less since they can take more time off and earn a lot of money