Unit5 Business Economics

Revision summary of business economics and distribution of income for AQA A-Level Economics Paper 5.

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James
UNIT 5: BUSINESS ECONOMICS
AND THE DISTRIBUTION OF INCOME
LABOUR MARKETS AND THE DISTRUBUTION OF INCOME
Discrimination: Occurs when a group of (potential) workers are treated differently from
others ­ e.g. pay, employment, promotion or working conditions.
Government Intervention: Employment Equity Act (03); Disability Discrimination Act (95).
Imperfect Competition in the labour Market: Trade unions are organisations of workers
who pursue better wages and working conditions. They are seen as monopoly suppliers of
labour.
Factors affecting TU powers: Union recognition by employer; legislation; profitability of
employer(s); degree of militancy; elasticity of demand for labour & product itself.
Absolute The inability to purchase the
Poverty basic necessities for life.
Relative Being poor in comparison to
Poverty other people.
Income inequality and poverty: Such people are often unemployed, old, children, unskilled,
lone parents and are sick/disabled.
BUSINESS ECONOMICS
LOSS: Average costs are greater than price.
SUPERNORMAL/ABNORMAL PROFITS: Only earnt in the short run and are maximised when
MC / MR.
NORMAL PROFITS: AC curve is at a tangent to the demand curve. AC = P.
However in the long run; if firms are earning supernormal profits then other firms will
increase supply. Thus the price will eventually fall and eliminate the supernormal profits.
Allocative Efficiency: In the short run, if a firm is more productively efficient then supernormal
profits will form. In the long term other firms will innovate & change resulting in more supply
and thus the price will fall.
Productive Efficiency: Where Price = Marginal Cost and consumer sovereignty. In the long run,
perfect competition will force businesses to change production in line with consumer
demands. If they fail to respond then they will go out of business.
Dynamic Efficiency
Measures productive efficiency over a period of time. E.g. Innovation and R&D.
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Oligopoly: 3+ big firms in an industry, dominating production. E.g. Tesco, ASDA, Sainsbury's,
Morrisons ("The Big Four").
Duopoly: 2 big firms in an industry, dominating production. E.g. Pepsi and Coca Cola.
Game theory looks at how one firm changes their approach as another firm alters their
strategy in the industry. Oligopolistic markets are like a game in that there are players in the
market, who are trying to win against each other.…read more

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INEQUALITY The person will to pay the highest price gets the good ­ thus there is
an inequality in the distribution of income and wealth. This is true for
expensive goods (e.g. cars); but EVERYONE is entitled to education and
healthcare.…read more

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