Economics what determines the equilibrium price or wage in a market

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  • Created by: bethany
  • Created on: 13-01-13 15:45
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  • What determines the equilibrium price or wage in a market
    • surplus
      • Producer surplus: is the difference between the price a producer is willing to supply a good for and the higher price they actually receive
    • Functions of the price mechanism
      • Rationing device - allocated to those who are prepared to pay the most
      • Incentive device - rising prices acts as an incentive to firms to produce more of a good
      • Signalling device - indicates changes in conditions of demand or supply.
    • Indirect Taxes
      • Ad valorem Tax
      • Specific tax
    • Subsidies
      • DEF: Is a grant given to producers to encourage them to supply more of a product
      • Reasons for a subsidy: Encourage producers to supply more of a good, lower price for goods and increase supply
    • Demand for labour
      • Derived demand - derived from the demand for the goods and services it makes
      • determinants of the demand for labour: demand for the final product, wage rate, other labour costs, price of other factor inputs, productivity of labour, government employment regulations
    • Supply of labour
      • determinants of supply of labour: wage rate, other net advantages of work, net migration, income tax, benefit reform, trade unions, government regulations and Social trends
    • NMW
      • ADVANTAGES: reduction in exploitation, reduction in wage inequality, reduction in voluntary unemployment, increase in labour productivity and keep up with the increase in cost of living
      • DISADVANTAGES: Increase in unemployment as firms find it too expensive (may replace with capital), increase in inflationary pressure, ineffective means to reduce poverty

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