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LC Econ FactorIncome

LC Economics Factor Incomes- Land, Labour, Capital and Enterprise

TermDefinition
Participation rate The proportion of the population of working age who are employed or looking for work.
Real wages The purchasing power of wages / it measures the amount of goods and services the worker can buy with the money wage.
Labour Productivity The output per worker per period of time e.g. per week.
Discuss the factors that impact on the supply of labour The average number of hours worked per week/Backward bending supply of labour / wage levels in other countries. High marginal tax rates. Government regulation / policies. Participation Rate. Labour mobility. Migration levels
Outline the challenges currently facing the Irish labour market and state appropriate government policy response for each challenge identified Excess supply of labour. Government Response:training. Job searching. Employ workers directly :Excess demand for labour. Government Response: Open up labour market: more efficient visa system. Encourage emigrants.Attractive working conditions. wages
The price of residential property has increased in Ireland in recent years. Discuss reasons for this development. General inflation. Demand (reduced interest rates-availability of loans-economic growth-age of pop-growth in urban areas-immigration-speculation . Inadequate supply. Inflation in construction industry.gov policy. Explanation is needed for all above.
Outline Economic Characteristics of Land Land is fixed in supply. Earnings of land are economic rent-it has no cost of production. A non-specific factor of production. Price of land does not affect the quantity available. Explanations are needed for all above.
Capital Anything manmade used in the production of goods and services
Interest The return to capital.
Fixed Capital Stock of fixed assets.
Working Capital Stock of Raw materials
Social capital Capital owned by society (schools
Private Capital Capital/assets owed by individuals.
Savings Income not spent.
Capital formation The process of spending money on capital goods.
Capital widening An increase in capital leaves the capital to labour ratio unchanged.
Capital Deepening An increase in capital increases the capital to labour ratio.
Factors affecting the level of saving Level of income; Rate of interest; Level of social welfare benefits (pensions); DIRT; Rate of inflation
Four reasons why people save Deferred expenditure; To earn interest; Unforeseen events; Retirement
According to the Classical Theory of Interest Rates...supply means The amount of money being saved with the financial institutions.
According to the Classical Theory of Interest Rates...demand means The demand for loans from the financial institutions.
According to the Liquidity Preference Theory of Interest Rates...supply means The amount of money in circulation.
According to the Liquidity Preference Theory of Interest Rates...there are three reasons people demand money The transaction motive; The precautionary motive; The speculative motive
Factors Influencing Level of Investment Entrepreneurs’ expectations about future profits;The rate of interest; The cost of capital goods;Government policy; The state of technology;The domestic economic climate; The international economic climate
Derived demand the demand for the factor comes from the demand for the good that the factor has helped to make.
Economic rent any surplus earned by a factor of production above its supply price.
Labour hoarding the firm is unwilling to let workers go even if the wage rate exceeds the MRP because it believes this is only likely to be the case in the short run.
Marginal physical product (MPP) the extra output produced as a result of the employment of an extra unit of that factor.
Marginal revenue product (MRP) the extra revenue earned by the firm as a result of the employment of an extra unit of that factor.
Non-specific factor A non-specific factor is one that can be transferred from one use to another.
Quasi-rent Economic rent earned by a factor of production in the short run which will disappear in the long run once the supply of the factor is increased.
Rent of ability A very high economic rent that is earned by a supplier of labour or an entrepreneur who possesses very rare talents or abilities.
Specific factor A factor can be used for only one purpose.
Supply price the minimum payment necessary to bring that factor into its present use and maintain it in that use.
Transfer earnings the earnings that the factor would receive in its next most highly paid alternative employment.
Why are there different wage rates for different jobs? Diff. in Productivity. Tradition.length/cost of Training. monetary benefits other than pay. Working conditions. Nature of job. Different pay for male/females and private/public workers.
Causes of unemployment Cyclical unemployment. Frictional unemployment. Seasonal unemployment. Structural unemployment. Institutional unemployment. Underemployment. You need to know what each of these are!
State the factors that influence the efficiency of Labour as a factor of production. Education/training/qualification. Natural talent. Quantity available of the other FoP. Quality of the other FoP. Living conditions. Degree of specialisation. Climate. Management expertise. Commitment of the worker. Be able to explain each of these!
Essential features of Capital Capital makes labour more productive. The creation of capital involves an opportunity cost. Savers provide funds for those wishing to invest. Be able to explain each of these!
Factors affecting the level of saving Level of Income. Rate of Interest. The level of state benefits and pensions. The tax system and government policy. The rate of Inflation. Consumer expectations. Be able to explain each of these!
Outline the economic effects which an increase in the rate of savings may have on the Irish Economy. Reduced spending in the economy. Increase in unemployment. More funds available for investment. Reduced inflation. less imports. Increased revenue for government. Stability in the banking sector. Be able to explain each of these!
Factors affecting the rate of interest. The ECB refinancing rate. The degree of risk to the lender. Degree of liquidity of the loan. The rate of inflation. The demands for loans. Be able to explain each of these!
Consumer goods Those goods that give consumers utility and for which they are willing to pay a price.
Investment The process of adding to the stock of capital (also called capital formation).
Investment ratio Gross investment as a percentage of GNP.
Liquidity preference The desire of an individual to hold his/her wealth in cash form.
Marginal efficiency of capital (MEC) The extra profit earned as a result of the employment of an extra unit of capital.
Nominal rate of interest The rate of interest received by the saver.
Saving That part of income that is not spent. (Saving = income — consumption)
Real rate of interest The nominal rate of interest minus the rate of inflation.
Created by: MrFromholz