Economics SSS 2 Topics First Term with Notes

Factors That Affect Supply and Demand

  1. Price fluctuations:

Price fluctuations are a strong factor affecting supply and demand. When a product gets expensive enough that the average consumer no longer feels it is worth it to buy the product, then the demand declines. This leads to cuts in production that will hopefully stabilize the product’s value. Lowering the price of a product may increase demand, indicating that the public feels the product is suddenly a great value. This may also cause changes in production to increase to keep up with the demand.

  1. Income and credit:

Changes in income level and credit availability can affect supply and demand in a major way. The housing market is a prime example of this type of impact. During a recession when there are fewer jobs available and there is less money to spend, the price of homes tends to drop. Also, the availability of credit may be less because of the average person’s inability to qualify for a loan. To help encourage those who can afford to buy, prices fall which can boost sales, and even more so if interest rates decrease. When there is an economic boom, unemployment is very low and people are spending money readily, the price of homes and other major purchases tends to rise and so do interest rates.

  1. Availability of alternatives or Competition:

When an alternative product hits the market, the competition between the existing product and the new one can cause demand to drop for the existing product. Just as many people may be buying the product, a large portion of them may elect to buy the alternative brand. This leads to price wars that ultimately lower the price of the product and may require a cut in supply to fall in line with the decrease in demand.

  1. Trends:

Demand rises and falls on trends in many cases. Only a few things remain a constant need for society. Even food and shelter aren’t immune to the effects of changing trends. If widespread media attention is given to the idea that eating bean sprouts is bad for you, then eventually it will affect the demand for bean sprouts. When the attention is focused on something else, the bean sprout market might rebound.

  1. Commercial Advertising:

Commercials on television, internet and radio have an effect on supply and demand in that they make more people aware of the availability of a product. People do not buy what they don’t know is for sale. If it is an appealing ad, there is a good chance demand will increase and supply will have to follow suit.

  1. Seasons:

The seasons can affect supply and demand drastically. The supply and demand for toys peaks around Christmas and turkeys sell like crazy at Thanksgiving. Fireworks experience a boom at the Fourth of July in America. Meanwhile, it’s difficult to increase demand for bikinis in January in Minnesota.

Demand and Supply Curve

The supply curve is a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. In a typical illustration, the price will appear on the left vertical axis, while the quantity supplied will appear on the horizontal axis.

The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. In a typical representation, the price will appear on the left vertical axis, the quantity demanded on the horizontal axis.

Movements along Demand Curves

When there is a change in the quantity demanded of a particular commodity, because of a change in price, with other factors remaining constant, there is a movement of the quantity demanded along the same curve.

The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc. remain constant and only the price of the commodity changes.

Shift in Demand Curves

When there is a change in the quantity demanded of a particular commodity, at each possible price, due to a change in one or more other factors, the demand curve shifts. The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc., which were expected to remain constant, changed.

In such a scenario, the change in price, along with a change in one/more other factors, affects the quantity demanded. Therefore, the demand follows a different curve for every price change.

This is the Shift of the Demand Curve. The demand curve can shift either to the left or the right, depending on the factors affecting it.

Factors affecting causing Shift in Demand Curve: Consumer’s incomeConsumer’s taste, Prices of related goods, Expected price of goods

Movement along the Supply Curve

When the price of a commodity changes, other factors kept constant, the quantity supplied of a commodity changes suitably. This is because of the direct relationship between the two. This is known as a change in quantity supplied. Graphically it causes movement along the supply curve. A change in price either causes supply curves to expand or contract.

If the prices increase, other factors kept constant, there is an increase in the quantity supplied which is referred to as an expansion in supply. Graphically, this is represented as an upward movement along the same supply curve.

Conversely, if the prices decrease, keeping other factors constant, firms tend to decrease the supply. This is referred to as a contraction in supply. Graphically, this is represented as a downward movement along the same supply curve.

Shifting in Supply Curve

The factors other than price affect the supply curve in a different manner. These factors cause the supply curve to shift. Of course, this shift is also categorized into two which are- a leftward and rightward shift.

Note that, this shift occurs because the price is constant when studying the effect of other factors on supply. A rightward shift indicates a positive effect on the curve whereas a leftward shift indicates a negative effect on the supply curve. We have already studied the various factors other than price and their relationship with the supply of a commodity. The factors can either have a direct or an inverse relationship with the quantity of commodity supplied.

 

Types of Demand

  1. Joint demand:

The demand for products and services that are complementary is called joint demand. These products can be accessories or items that people often buy together. You could think of peanut butter and jelly, or cereal and milk. Although they are closely related, the demand for one does not necessarily depend on the demand of the other.

  1. Composite demand:

When multiple uses are made of a single product, it is called composite demand. Corn can be used in its entirety as a food, animal feed, or ethanol. A shortage of any one of these products can result in a rise in demand. This can cause a rise in the price.

  1. Short-run and long-run demand:

Short-run demand is the way people react to price changes, even if elements are not changed. If the demand for a product drops dramatically and the manufacturer has high overhead expenses, they will have to absorb the lost profits. Companies have the ability to adapt to changing circumstances through types of demand and supply over time or long-term by increasing or decreasing the price of labor and supplies.

  1. Price demand:

The price demand refers to how much a consumer will spend on a product for a given price. This information is used by businesses to decide at what price point a product should be introduced to the market. The value perception of a product is what will drive consumers to purchase it. Price elasticity refers to the way that demand will change in response to price fluctuations.

  1. Income demand:

Quantity demand rises as consumers earn more. People will spend more if they have more income. With an increase in income, tastes and expectations change. This can lead to a reduction or increase in the size of a market and a rise in the size of another. While consumers will buy products and services because they are affordable, they may also choose lower-quality options. As income rises, so will the demand for lower-quality products.

  1. Competitive demand:

When customers have a choice of other products or services, they are in competitive demand. A business can look at fluctuations in the prices of their competitors to decide how they will sell their products. This is an example of how this works between store-brand medicine and name-brand medicine. The store brand will experience a rise in sales if a consumer chooses a name-brand brand, but it is not in stock or the price has increased significantly.

  1. Demand from direct and derived sources:

Direct demand refers to the demand for a final product. This can be seen in food, clothing and cell phone usage. It’s also known as autonomous demand.

The demand for a product that is derived from other people’s use is called derived demand. The demand for pencils, for example, will lead to the demand of graphite, paint, and eraser materials.

Types of Supply:

  1. The short-term supply: This refers to the fact that a buyer’s ability to purchase goods is limited by the availability of supplies. The products that are available to buyers cannot be purchased by buyers, hence leads to more supply by the producers.
  2. The long-term supply: The factor of time availability when the demand changes is called long-term supply. This means that the availability of time allows the supplier to adjust to sudden shifts in demand.
  3. Consequential supply: The consequential supply is explained by joint supply. Lamb production has an impact on meat and wool supply. If farmers stop farming lambs, the supply of meat and wool will also decrease. The opposite will happen if there is an increase in wool supply.
  4. Market Supply: Market supply is the willingness and ability of suppliers to supply a product on a daily basis. Example: Wheat suppliers A, B and C might be willing to supply 5 kilos of wheat at $1 per kilogram for a total 11 kilos. The suppliers could increase their supply to 10, 8 and 15 kilos if prices rise to $2.50. The market supply totals 33 kilos.

Assignment: Plot the following data for demand and supply of gas on the same graph and indicate the market price and corresponding quantity of supply and demand.

 

 

TOPIC: PRODUCTION POSSIBILITY CURVE

A production possibility curve in economics measures the maximum output of two goods using a fixed amount of input or resources. The input or resources is any combination of the four factors of production: Land, labor, capital and entrepreneurship.

It can also be defined as a visualization that demonstrates the most efficient production of a pair of goods using available resources. Each point on the curve shows how much of each good will be produced when resources shift to making more of one good and less of another.

By graphing the PPC and adding a point on the graph for where the company or economy is currently producing, it can easily be seen if resources are being used efficiently or not.

The PPC is graphed against two goods, and these two goods must both depend on the same resources. Graphing phones against beef production wouldn’t make sense since both goods rely on different resources; however, graphing beef production against corn production would be beneficial to look at since both require land.

It is necessary to compare goods that utilize the same resources because the PPC illustrates that as production of one good increases, production of the other good must decrease due to scarce resources. It can be used by companies to decide how to effectively and efficiently allocate resources to generate the most profitable product mix.

Constructing a Production Possibility Curve

In this simple example of a production possibility curve between the production of beef and the production of corn, the production schedule below is used to produce the PPC graph.

Producing outside of the PPC, given all else is equal, is impossible since there are no additional resources available to meet this production capacity. Producing inside the PPC shows that the economy or company is not fully utilizing resources, and changes can be made to more efficiently allocate resources. This is also indicative of some level of unemployment. Producing on the PPC is the ideal situation because all resources are being fully utilized in production and there is full employment.

Depending on the types of resources available and demand for beef, the opportunity cost of producing less beef will increase with each additional unit of corn produced. This opportunity cost varies based on resources, demand, and the product itself, so each company and economy must decide the best combination based on these factors.

 

The PPC, as previously mentioned, represents combinations of two goods that fully utilize the available resources. If the available resources change, the PPC will shift, resulting in more or less production possibilities. A gain in available resources, such as an advance in technology, an increase in available land, an increase in labor or an increase in capital, will result in an outward shift in the PPC, meaning that the economy or company can now produce more than was possible before. This is illustrated in the graph below.

CLASS ACTIVITY: Construct a PPC for the production of oranges and apples by an economy in 2022 and state the total number of fruits that can be produced at a given point on the PPC and also state the points where resources are not fully utilized and also where production is impossible.

APPLES ORANGES
140,000 0
130,000 37,000
120,000 20,000
85,000 35,000
0 40,000
50,000 15,000

 

CONCEPT OF TOTAL, AVERAGE AND MARGINAL PRODUCT

The total product of labour (TP)

This is the aggregate sum of all output from all units of labour used in a given period. In simple words, It is the total quantity produced from the units of labour used in the production.

Total product is very relevant for measuring the entire productivity of labour. Total product provides simple yet important information as to how efficient and effective a firm is producing output relative to its industry.

 

The average product of labour (AP)

This is simply the per-unit product of labour. Average product is very important as it helps firms to know which worker productivity is below and above the average. It is obtained by dividing the total product by units of labour. Mathematically, it is expressed this way:

AP = TP/L

Where TP = Total product and L = Labour

Eg: Given a firm was able to produce 100,000 units of books after employing 1000 workers. Calculate its average product.

 

The marginal product of labour (MP)

This measures the productivity of each additional unit of labour. It is the additional output that can be obtained by using an additional unit of labour, holding all others inputs constant.

It is obtained by dividing the change in the total product by the change in units of labour.

Mathematically, it is represented this way:

MP =     TP /     L

Eg: If a firm could produce 80 units of a good with 10 workers or produce 94 units of goods with 12 workers. Calculate the marginal product of the 11th worker.

 

Note: When tables are involved and labour increases by 1 unit: a) to obtain AP, divide the TP by Labour.

  1. b) to obtain TP for a particular labour when MP is given, add the value of TP for the immediate previous labour, to the value of MP for the current labour.
  2. c) to obtain TP when AP is given, simply multiply the AP with the value of the labour.

 

Example: Find the value of the following unknowns below and plot TP, AP and MP on one graph. Advice the company from your graph. Also indicate the points of Increasing and diminishing marginal returns.

Labour Total product (TP) Marginal product (MP) Average product (AP)
0 0 ——– ——–
1 50 B A
2 170 D C
3 E F 110
4 G 20 H
5 320 J 64
6 I – 20 K

 

CLASS ACTIVITY:

  1. Find the value of the unknowns in the table below.
  2. Plot TP, AP and MP on one graph.
  3. From your graph, what is the relationship between TP and MP?
  4. What is the relationship between MP and AP?
  5. Advice the company from your graph.
  6. Indicate the points of Increasing marginal returns and decreasing marginal returns.
Labour Total product (TP) Marginal product (MP) Average product (AP)
0 0 ——– ——–
1 2 B 2
2 F 3 E
3 A C 3
4 12 D 3
5 14 2 G
6 I H 2.5
7 13 J 1.85
8 K – 3 1.25

 

Law of Variable Proportion

The Law of Variable Proportions states that as the quantity of a factor is increased while keeping other factors constant, the Total Product (TP) first rises at an incremental rate, then at a decremental rate and lastly the total production begins to fall.

TOPIC: COST CONCEPTS

Introduction:

A firm carries out business to earn maximum profits. Profits are the revenues collected by a business firm after production and sale of their goods and services. But to gain something, the producer has to lose something. That means, to earn revenues the producer has to incur costs.

Cost of Production:

This is an expenditure incurred by a firm to produce goods and services for sale in the market. In other words, a cost is the outflow of money from the business to gain inflow of money after sale of the commodity. A producer has to incur various costs in order to produce goods and services. These costs are of various types.

Types of cost: The following are the various types of costs:-

  1. Fixed cost
  2. 2. Variable cost
  3. 3. Total cost
  4. 4. Average cost
  5. 5. Marginal cost
  6. Fixed Cost (FC): Fixed costs also known as overhead cost are those costs that do not change in the short run period of time. Fixed costs remain the same regardless of the amount of production and sale of commodities. These costs are incurred by the company irrespective of its production, i.e. even at zero production, the firm incurs fixed cost.
  7. Variable Cost (VC): A variable cost is that cost which changes in short – run and long – run time period. It always keeps on changing. These costs are incurred during production process and thus are the costs incurred for employing various factors of production. A fixed cost becomes a variable cost in the long – run.
  8. Total Cost (TC): Total cost: Total cost is the total expenditure incurred by the producer to produce his goods. Total cost is also the summation of total fixed costs and total variable costs.

Total cost is evaluated as follows:-

  1. Total Cost (TC) = Cost per unit x Quantity Produced
  2. Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)
  3. Average Cost (AC) or Average Total Cost (ATC): An average cost is the expenditure incurred by the producer, for producing each unit of the products. An average cost is the per unit expenditure of the producer. Average cost is also the summation of average fixed cost (AFC) and average variable cost (AVC). Average cost is evaluated as follows:-
  4. Average total cost (ATC) = Total Cost (TC) / Total Quantity produced or Total output (TQ)
  5. Average total cost (ATC) = Average fixed cost (AFC) + Average variable cost (AVC)

From all the above:

  1. AFC = TFC / TQ or AFC = ATC – AVC
  2. AVC = TVC / TQ or AVC = ATC – AFC

Marginal Cost (MC): Marginal cost is the expenditure incurred by the producer to produce an additional or an extra unit of the commodity. Marginal cost is the additional cost incurred for producing one extra unit after producing certain amount of units.

Marginal cost (MC) = Changes in TC / Changes in Output or No. of goods produced.

 

 

 

 

Cost concept continuation:

ECONOMIST’S VIEW OF COST

Economists view cost as opportunity cost.  He is not concerned about the real amount of money spent on a particular item but the value of the sacrificed alternative.  For example, if an individual bought a shoe instead of a handset.  The opportunity cost is the handset forgone.

ACCOUTANT’S VIEW OF COST

To an accountant, cost is the total amount of money spent to acquire a product.

Cost curves:

  1. Total Cost (TC):
  2. Fixed Cost (FC):
  3. Variable cost or total Variable cost (TVC): TVC = TC – FC

 

  1. Average cost (AC) or Average Total Cost (ATC):
  2. Average Variable Cost (AVC):
  3. Average Fixed Cost (AFC):

 

  1. Marginal Cost (MC):
Unit of Output (TQ) Total Fixed Cost (TFC) Total Variable Cost (TVC) Total Cost (TC) Average Total Cost (ATC) Average Variable Cost (AVC) Average Fixed Cost (AFC) Marginal Cost (MC)
1 20 M J 32 I 20 –
2 20 14 A 17 C 10 2
3 20 B 36 12 5.3 6.6 D
4 20 18 38 9.5 E 5 2
5 20 20 40 F 4 K 2
6 20 22 42 7 H L 2
7 20 24 G 6.3 3.4 2.8 2

COST SCHEDULE OF A FIRM

Find all the unknowns above and plot TFC, TVC, TC, ATC, AVC, AFC and MC on the same graph.

 

 

 

 

ASSINGMENT:

  1. COST SCHEDULE OF A FIRM
Output  (TFC)  (TVC)  (TC)  (AVC)  (AFC)  (Mc)
0 100 1 C 0 100 –
1 100 40 D 40 140 K
2 100 A 164 G 84 L
3 100 B 180 H 60 8
4 100 88 188 22 I 8
5 100 96 196 19.5 J 8

Find all the unknowns above and plot TFC, TVC, TC, ATC, AVC, AFC and MC on the same graph.

 

  1. What is the difference between money cost and opportunity cost? Site an example that should not be the same with that of your classmate.

 

TOPIC: REVENUE CONCEPT

Revenue is defined as the income received by a firm or organization from the sales of its product.

In other words, revenue is defined as the receipt that a firm obtains from selling its goods.

The following revenue calculation is used by economists to analyze the revenue of economic entities.

  1. Total revenue (TR):

As the name implies, total revenue is the total receipt that a firm obtains from selling its goods.

More appropriately, total revenue is the sum of all payments received by a firm or organization from the sales of its goods.

It is computed as price times quantity, like this:

TR=P×Q.

For instance, if a firm was able to sell 500 apples at €30 each, its total revenue will be 500 x €30

= €1500.

As another example, if a firm sells 100 books for €5 per book, then its total revenue would be 5×100 = €500

  1. Average revenue (AR):

As the name suggests, average revenue is the per-unit revenue. It is derived by dividing the total revenue of a firm by the quantity sold.

Mathematically, Average revenue is expressed as:

AR= TR/Q.

It is important to note that average revenue always equals price.

Let me show how valid this is, mathematically;

You know,

AR = TR/Q

But TR = P×Q, Hence

AR = P×Q/Q

Hence AR = P

Because the average revenue always equals price, the average revenue curve of any firm is the same as its demand curve.

Remember that the demand curve relates to price and quantity while average revenue relates to average revenue and quantity.

Example

If a firm receives a total revenue of €400 from selling 40 apples. Its average revenue is:

AR = 400/40

AR = €10

 

  1. Marginal Revenue (MR):

This refers to the addition to total revenue as a result of selling one unit of output.

Simply put, marginal revenue is the change in total revenue as a result of selling an additional unit of sales.

Mathematically, it is represented as:

MR = ∆TR / ∆Q

EXAMPLE:

Complete the table below and plot AR, MR and TR on the same graph. What is the visible relationship between (i) TR and MR (ii) AR and MR ?

 

Quantity

Sold (Q)

 Price

(P)

 TR(P×Q) AR

(TR÷Q)

 MR (∆TR÷∆Q)
1 10 10 10 10
2 A 18 H 8
3 8 B 8 I
4 7 C 7 J
5 G 30 D 2
6 5 30 5 0
7 4 F 4 E

 

Relationship Between Total And Marginal Revenue

We can observe three things from the graph.

  1. The total revenue will keep increasing as long as marginal revenue is positive.
  2. Total revenue is at a maximum when marginal revenue is zero. In this case, the total revenue is at a maximum of 6 units.
  3. When marginal revenue is negative, then total revenue falls. This is the castor of the seven units.

Relationship Between Average And Marginal Revenue

The relationship between average revenue and marginal revenue is such that:

  1. Average revenue will fall when marginal revenue is lesser than average revenue.
  2. Average revenue will remain constant when marginal revenue equals average revenue (like the case with perfect competition)
  3. Average revenue will rise when marginal revenue is above the average revenue.

 

ASSIGNMENT

Complete the table below and plot AR, MR and TR on the same graph. What is the visible relationship between (i) TR and MR (ii) AR and MR ?

Quantity

Sold (Q)

 Price

(P)

 TR(P×Q) AR

(TR÷Q)

 MR (∆TR÷∆Q)
1 B A 20 C
2 18 D H 16
3 16 48 E 12
4 14 C F J
5 G 60 12 4
6 10 I 10 0
7 K L 8 M

 

 

TOPIC: ECONOMIC SYSTEMS

An economic system may be defined as a medium or an organized way by which the means of production in a state are utilized in order to satisfy human wants.

 

The major types of economic systems are capitalism, socialism, and the mixed economy.

  1. CAPITALISM OR FREE MARKET ECONOMY

Capitalism or free market economy may be defined as the type of economic system in which the means of production are owned and controlled by private individuals.

 

A country which practices capitalism could be said to have a market economy, a laissez-faire economy, an uncontrolled economy, a free enterprises, or a capitalist economy.

 

Examples of countries which practice capitalism include the U.S.A, Japan, Australia, France, Italy etc.

 

FEATURES OF CAPITALISM

  1. Private ownership of properties: There is high degree of private ownership and control of means of production with minimal participation by the state
  2. Existence of competition: In a market economy there is competition among the various individuals and firms as a result of an effort to acquire wealth or control means of production.
  3. Profit maximization motive: Capitalism is characterized by high level of profit maximization by private investors.
  4. Freedom of choice: Consumers in this economy are free to choose from a wide range of goods and services
  5. Production and consumption are regulated by price system: The price system determines what producers have to produce, taking into consideration the demand of the consumers and the price offered for the goods
  6. Development of individual initiatives: Individual initiatives are well developed in a market economy
  7. Wealth accumulation: In a free market system wealth is accumulated by the capitalists.

ADVANTAGES OF CAPITALISM

  1. Competition and rivalry lead to efficiency and full utilization of societal resources both human and materials
  2. Freedom to own properties and factor of production
  3. It promotes increased standard of living
  4. It facilitates rapid economic growth and development
  5. There is increased efficiency in production
  6. Capitalism removes the tendency for the growth of dictatorship
  7. Talent are fully utilized
  8. It enhances technological development
  9. Provision of alternatives choice
  10. High standard of living

 

DISADVANTAGES OF CAPITALSIM

  1. There may be waste and inefficiency in the use of productive resources as a result of unhealthy competition among the producers
  2. There is an exploitation of consumers
  3. It creates disparity of income and wealth. There is inequality in income and wealth in a capitalist economy
  4. It creates monopoly: As a result of economic activities of a few individual investors, monopoly can easily be created
  5. Profit maximization at all cost: In capitalist economy, private individuals are interested in making profit by all means.

 

  1. SOCIALISM

Socialism also called centrally planned or controlled economic system is defined as type of economic system in which the means of production and distribution are collectively owned and controlled by the state (the government).

A country which practices socialism is said to have a controlled economy, a centrally planned economy, a socialist economy, or a command economy. Good examples of countries operating under socialism are Tanzania and Poland.

 

FEATURES OF SOCIALISM

  1. State ownership of means of production: Ownership and control of industries resources and means of production and distribution are vested in the hands of the government.  Private individuals are not allowed to own properties
  2. Collective decision making: Decision on what to produce, how to produce and for whom to produce are taken jointly by the people
  3. Promotion of social welfare: It is a system characterized by maximization of social welfare
  4. Absence of competition: In this type of economic system, economic rivalry associated with capitalism is non-existent
  5. Absence of profit motive: The major reason for carrying out productive activities is not to maximize profit but to provide for people’s welfare and raise the general standard of living
  6. Allocation of goods and services is carried out by the central planning committee
  7. Various committees are set up by the government to help in estimating people’s wants and to regulate production and consumption.

 

ADVANTAGES OF SOCIALISM

  1. Equitable distribution of Income: Incomes are equitable or fairly distributed among the people based on their needs or wants
  2. Job security: The interest of labour is protected in socialist economy.  Jobs are secured, therefore, unemployment is minimal
  3. Growth of private monopoly is checked: All productive resources are owned and controlled by the government
  4. No overproduction of goods: Goods are produced according to the needs or wants of individuals.  There is no room for excess capacity or over production.
  5. Absence of exploitation: There is always absence of exploitation since government provides all the goods and services required by the citizens
  6. Absence of economic rivalry: Economic rivalries among private individuals are absent in a socialist economy system.

 

DISADVANTAGES OF SOCIALISM

  1. Absence of consumer choice and satisfaction: There is no room for consumer choice and satisfaction. Any goods produced must be accepted. Goods are provided on group basis. For example, there are teachers groups, nurses’ group etc.
  2. It suppresses individual initiatives
  3. It shows down economic development.
  4. Absence of competition: There is complete absence of competition in a socialist economy as all goods and services are provided by the government
  5. It leads to state monopoly: As the state provides all essential goods and services for the citizen
  6. Absence of creativity and innovation
  7. Socialism may give rise to the growth of dictatorship

 

  1. THE MIXED ECONOMY

Mixed economy may be defined as the type of economic system in which both the private and public ownership of means of production and distribution exist together in a country.  Examples of countries which operate mixed economy are Britain, Nigeria, Mexico, etc.

 

FEATURES OF MIXED ECONOMY

  1. Joint ownership of means of production
  2. Joint decision: Decisions on what to produce, for whom to produce and how to produce are jointly taken by the government and the private sector.
  3. Freedom of choice: There is consumer sovereignty.  Consumers are free to make their choice from a wide variety of goods
  4. Presence of competition since the means of production are owned by state and private, there is economic rivalry and competition
  5. Freedom of production, distribution and consumption: This means of production and distribution are not centrally owned by the government
  6. Government intervenes to regulate prices

 

ADVANTAGES OF MIXED ECONOMY

  1. Equitable distribution of income: Mixed economy ensures that incomes are equitably distributed among the citizen.
  2. There is freedom of choice: Consumers and producer in this type of economic system have a wide range of choice to make
  3. It combines capitalism and socialism: Mixed economy combines the good qualities of both capitalism and socialism.
  4. Encourages development of private initiative: It ensures the growth of entrepreneur.
  5. It prevents monopoly: Monopoly is prevented because of the joint participation in economic activities by both the private sector and the state
  6. Encourage growth and development: Joint efforts of both the government and private enterprises can lead to economic growth and development.

 

DISADVANTAGES OF MIXED ECONOMY

  1. Inequality of wealth: Wealth is not equitable distributed as there is a wide gap between the rich and the poor
  2. Emphasis is on profit: There is more emphasis on profit maximization at the expense of welfare for the citizen
  3. Corruption and mismanagement: Mixed economy encourages corruption and mismanagement, especially in the public sectors
  4. Leads to waste of resources: Public sector interference in economic activities may lead to resources wastage
  5. Exploitation of labour: Labour as a factor of production can be exploited by the public and private sectors
  6. Lack of efficiency: There is lack of efficiency in productive activities and this leads to low productivity.

 

TOPIC: LABOUR MARKET

Labour market is defined as a market which workers and employers are brought into contact and conditions of work are decided.  It is made up of people who are looking for job, employers and government.

                                          THE CONCEPT OF LABOUR FORCE

Labour force can be defined as the total number of people of working age in a country who are gainfully employed and those who fall within the age bracket, capable and willing to work by law but have no work to do in a country at a particular period of time.

Labour force is the working population and it comprises all persons who have jobs and who are seeking for jobs in the labour market.  They are between the age of 18 years and 60 years.  Working population varies from one country to another.

FACTORS AFFECTING THE SUPPLY OF LABOUR OR SIZE OF LABOUR FORCE (WORKING POPULATION)

  1. THE SIZE OF POPULATION: The higher the size of the population, the higher the working population and vice versa.
  2. OFFICIAL SCHOOL LEAVING AGE: If the school leaving age is low, the proportion of labour force will be high and vice versa
  3. OFFICIAL AGE OF RETIREMENT: If the age of retirement is raised the supply of labour will tend to increase because more people will be available for work
  4. LEVEL OF REMUNRATION OR THE WAGE RATE: The extent of salaries, wages and other remunerations paid to the workers determines the number of people who may be willing to work.
  5. MIGRATION: Immigration will increase and emigration will decrease the supply of labour.

 

                                            MOBILITY OF LABOUR

The mobility of labour refers to the ease with which workers or labour can move from one occupation to another or from one geographical area to another.

 

TYPES OF LABOUR MOBILITY

  1. OCCUPATIONAL MOBILITY OF LABOUR: This refers to the ease with which workers can move from one job to another.  For instance, a messenger can easily change to become a cleaner or a farmer.
  2. GEOGRAPHICAL MOBILITY OF LABOUR: This refers to the ease with which workers can move from one geographical location to another.e.g Port Harcourt to Jos.
  3. INDUSTRIAL MOBILITY OF LABOUR: This refers to the ease with which workers can move within the same industry or from one industry to another.

CAUSES OF MOBILITY OF LABOUR OR FACTORS INFLUENCING MOBILITY OF LABOUR

  1. Unfavorable working condition
  2. Marriage
  3. Irregular payment of salaries
  4. Promotion
  5. Bad management
  6. Climate
  7. Lack of job security
  8. Lack of social amenities
  9. Accommodation problem
  10. Political instability
  11. Personal reasons.

                                    THE EFFICIENCY OF LABOUR

The efficiency of labour refers to the extent or degree to which labour can be combined with other factors of production to yield maximum output.

In other words, efficiency of labour is the ability of labour to attain higher level of output without a reduction in the quality of output.

FACTORS DETERMINING EFFICIENCY OF LABOUR

  1. Education and training
  2. General working conditions
  3. Health of workers and availability of improved health facilities
  4. The amount of incentives or remuneration given to workers
  5. Efficiency of other factors of production
  6. Degree of specialization and division of labour
  7. Welfare services and state of mind of the worker
  8. Weather conditions

SUPPLY OF LABOUR

Supply of labour may be defined as the total number of people of working age offered for employment at a particular time and at a given wage rate.

This supply of labour also relates to the quantity of labour.

FACTORS AFFECTING SUPPLY OF LABOUR

  1. The size of population and population growth
  2. The age structure of the population
  3. The official school leaving age
  4. Official age of entry and retirement
  5. The number of people the pursue full time education beyond the normal school leaving age
  6. The number of married women who take up paid employment
  7. The number of people of working ages in the country who are disable or incapacitated
  8. The number of able-bodied people in the country who are not willing to work
  9. The number of working hours per week
  10. The rate of remuneration or the wage rate

 

DEMAND FOR LABOUR

Demand for labour may be defined as the total number of workers employer are willing and ready to employ or hire at a particular time and at a given wage rate.

The demand for labour relates to the quantity of human effort required by entrepreneur for carrying out production.

The demand for labour is a derived demand.

FACTORS INFLUENCING DEMAND FOR LABOUR

  1. The number of industries in a country
  2. The nature of industries
  3. The quantity of other factors of production available
  4. The price of labour or the wage rate
  5. The state of employment in the economy
  6. The demand for labour output and the price level within the economy.

 

WAGES

Wages refers to payment to labour on a daily or weekly basis.

Salaries refer to the payment made to labour on a monthly basis.

 

TYPES OF WAGES

  1. Nominal Wages: It is the actual money paid for labour in a particular period of time
  2. Real Wages: This is the purchasing power of labour. Real wages refer to wages in term of goods and services the wages can buy.

DETERMINATION OF WAGERS

  1. The wages of labour in a market economy can be determined through the forces of demand and supply. Wage rate in a competitive labour market can be determined in the following manner:
  1. When the supply of labour exceeds the demand, wage rate will fall.
  2. When the demand for labour exceeds the supply, wage rate will rise.
  1. When the demand for labour equals the supply, wage rate will be favourable to both the employer and the employee.
  1. Government activities and policies: Government institution and wages commissions set up by the government help in determining wages, especially in the public services.

In fixing wages, the government agency or wage commission takes the following factors into consideration.

  1. Cost of living: The higher the cost of living, the higher wages are likely to be
  2. Level of productivity: The greater the level of production in the country, the higher the wage rate.
  3. Type of occupation: The wage structure varies from one occupation to another.

 

FACTORS RESPONSIBLE FOR VARIATION IN WAGES

  1. Differences in cost of training
  2. Differences in period of training
  3. Skill needed at work
  4. The bargaining power of the trade union
  5. Degree of risk involved in an occupation
  6. The prestige attached to an occupation.

 

TRADE UNION

A trade union is an association of workers formed to enable the members to take collective, rather than individual, action against their employers in matters relating to their welfare and conditions of work.  E.g. Academic staff union of universities (ASUU), National union of petroleum and Natural Gas Workers (NUPENG) etc.

 

OBJECTIVES OF TRADE UNION

  1. To secure good wages for members
  2. To safeguard interest of members
  3. Helps in policy formulated
  4. They also regulate the entry qualifications into the various professions
  5. Job security
  6. To secure better working conditions

 

WEAPONS OR INSTRUMENTS OF TRADE UNION

  1. Negotiation or Collective bargaining with Employers: Collective bargaining is a process by which a trade union and the management try to resolve their differences through joint negotiations.
  2. Threat to Strike: The trade union my give an ultimatum to the employer or to the management informing them of an impending strike by the union if their demands are not met within a given period of time.
  3. Work to Rule: This involves the workers deliberately showing down operations in order to press down their demands for improved conditions of services
  4. Picket lines: This involves the workers refusing to work, parading and sometimes blocking the entrance to the plant or factory
  5. Strike: A strike involves workers refusing to work and staying away completely from their place of work until their demands are met.

ASSIGNMENT:

  1. Explain the factors which influence the level of employment in your country
  1. Distinguish between labour and labour force
  2. State four reasons for difference in earning among workers.
  3. Differentiate in simple terms, between supply of labour and demand for labour.

 

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