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Influences on Demand for Production Factors

The document discusses several topics: 1) Two influences on a firm's choice of factors of production are the type of product and costs of factors. 2) Arguments for and against subsidizing house building, including increasing supply versus opportunity costs. 3) Reasons trade union membership may decrease, such as higher fees, less power, and fewer jobs. It also analyzes topics like the causes of high birth rates, effects of larger farm size, reasons for specialization and trade, and why supply and unemployment may change.

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150 views7 pages

Influences on Demand for Production Factors

The document discusses several topics: 1) Two influences on a firm's choice of factors of production are the type of product and costs of factors. 2) Arguments for and against subsidizing house building, including increasing supply versus opportunity costs. 3) Reasons trade union membership may decrease, such as higher fees, less power, and fewer jobs. It also analyzes topics like the causes of high birth rates, effects of larger farm size, reasons for specialization and trade, and why supply and unemployment may change.

Uploaded by

farah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

(1) Explain two influences on what factors of production a firm uses.

[4]

• the type of product produced/size of the firm (1) for instance, producing nuclear
power is capital-intensive (1) • the productivity of factors of production (1) if, for
instance, labour becomes more skilled, a firm might become more labour-intensive
(1) • the availability of factors of production (1) in some countries there may be a
shortage of oil or people of working age (1) • the relative cost of factors of
production (1) if capital is relatively expensive, labour intensive methods of
production may be used (1)

2. Discuss whether the building of houses should be subsidised [8]

Up to 5 marks for why they should be:


• subsidising houses will provide an incentive to build houses (1) increase the
supply of houses (1) reduce the price of houses (1) this may make it easier for
the poor to buy houses (1) increase the quality of the lives of the poor (1)
• subsidising houses will increase economic activity (1) to produce more houses
would require more labour (1) this would reduce unemployment (1)
• housing is a necessity (1) so building more houses may reduce
poverty/homelessness

Up to 5 marks for why they should not be:


• would involve an opportunity cost (1) government spending could be used on
other
• areas e.g. education/health care (1)
• may generate external costs (1) for example, pollution and destruction of the
natural environment (1)
• there may be no demand for extra houses (1) in this case there will be an
oversupply of houses/inefficient use of resources (1)
• building firms may become reliant on subsidies (1) and this increase
inefficiency (1)
(2) Analyse three reasons why trade union membership may decrease in a
country. [6]
 trade union subscriptions may increase (1) making it more expensive for
people to join a trade union (1)
 legislation may reduce the power of trade unions (1) this would make
membership less valuable (1)
 employers may not recognise trade unions/be reluctant to employ members of
trade
 unions (1) this may make people reluctant to join as it would reduce their
employment opportunities
 unemployment may mean that there are fewer people in employment to
belong to trade
 unions (1) it will weaken the power of trade unions (1)
 in a boom period/high level of economic activity (1) workers may gain wage
rises/better
 working conditions without belonging to a trade union (1)
 workers may be satisfied with pay and conditions (1) may not agree with
actions of trade union (1)
 government action to improve the pay and/or conditions of workers e.g.
introduction of national minimum wage (1) reduces the need for collective
bargaining
(3) Explain two causes of a high birth rate. [4]
 a high infant mortality rate (1) people having a high number of children not
expecting all of them to live (1)
 a lack of financial support for the elderly (1) people having children to
support them in old age (1)
 women marrying at a young age (1) giving them longer time in which to have
children (1)
 a young population (1) with a high proportion of people of child bearing age
(1)
 a lack of availability/willingness to use contraception (1) resulting in more
births than planned (1)
 not many women working (1) not restricting the number of children they have
in order to follow a career (1)
 a lack of education (1) reduces knowledge of contraception/cost of bringing
up children/
 proportion of women working (1)
 government incentives to have children (1) high state benefits would increase
willingness and ability of people to have children

(4) Analyse how an increase in the size of farms may affect the cost of producing
food.[6]

• larger farms may produce higher output (1) this will increase total cost (1)
• larger farms may be able to take advantage of economies of scale (1) examples of
economies of scale available to farmers e.g. buying (purchasing seed in bulk),
technical
(using e.g. combine harvesters), managerial (specialist workers e.g. shepherds) up to
(2)
will lower average costs (1)
• larger farms may experience diseconomies of scale (1) examples e.g. worse labour
relations (1) will increase average costs (1)
• larger farms are likely to have higher fixed and variable costs (1) but their average
fixed
costs are likely to be lower (1) as these costs will be spread over a higher output (1)
their
average variable costs may be lower due to economies of scale/or higher due to
diseconomies of scale (1)

e) Analyse why countries specialise and trade. [5]

• specialising allows countries to concentrate on what they are best at (1) influenced
by
factor endowment (1)
• specialisation can reduce the (average) costs of production (1) raise productivity
(1)
efficiency (1) enabling lower prices to be charged (1)
• specialisation could increase export revenue/improve trade position (1)
• specialisation can increase output/income/GDP (1)
• specialisation can improve the quality of output (1)
• higher output/income/GDP may raise living standards (1)
• increasing the size of the market (1) can lead to economies of scale (1)
• countries may import products from countries that can produce them more
efficiently (1)
• countries may import products to gain a greater variety of goods and services (1)
• countries may import products they cannot produce themselves (1)
Note: reward reference to comparative advantage and/or absolute advantage (max 2
marks)
but do not expect it.

(b) Explain two reasons why the supply of a product may be price inelastic. [4]

• long production period (1) this will make it difficult to adjust supply quickly (1)
• inability to store the product (1) this means goods cannot be taken out of storage to
meet
higher demand (1)
• time period under consideration (1) supply is more inelastic in the short run (1)
• if there is a shortage of the raw material (1) it will be difficult to supply more in
response
to a rise in demand/price (1)

(c) Analyse why a fall in the inflation rate may reduce a country’s
unemployment rate. [6]

• a fall in the inflation rate may make the country’s products more internationally
competitive (1)
• purchasing power will be higher than in the case of a higher inflation rate (1)
• demand for the country’s products may increase (1)
• to produce more, a higher number of workers will be employed (1)
• cyclical unemployment may fall (1)
• a lower inflation rate may reduce the growth in wage rates (1) this may encourage
firms
to take on more workers (1)
• a lower inflation rate may attract multinational companies to set up in the country
(1) this
may create new jobs (1)
• a lower inflation rate may enable a country to have a lower interest rate (1) this
would
reduce the cost of borrowing/may encourage investment/encourage more total
demand (1)
(d) Discuss whether a decrease in government spending will reduce inflation.
[8]

Up to 5 marks for why it might:


• lower government spending is contractionary fiscal policy (1) it will reduce
demand for
goods and services (aggregate demand) (1)
• lower demand may discourage firms from raising prices (1) reduce demand-pull
inflation
(1)
• lower government spending may increase unemployment (1) this could put
downward
pressure on wages (1) lower cost-push inflation (1)
Up to 5 marks for why it might not:
• lower government spending on education and health care (1) may reduce the
quality of
the labour force (1) this could lower productivity (1) raise wage costs (1) cause cost-
push
inflation (1)
• lower government spending on infrastructure (1) will increase firms’ transport
costs (1)
causing cost-push inflation (1)
• lower government spending may be offset by other causes of inflation (1), e.g. a
lower
exchange rate/consumer boom (1)
• reduction in government subsidies to firms (1) will raise costs of production (1)
causing
cost-push inflation (1)
• inflation may be caused by other factors (1) identification of another cause (1)
policy
measure to correct other cause (1) explanation of how policy measure would work (1)
(c) Analyse why people may migrate to a country with a high unemployment
rate. [6]

• the unemployment rate may still be below that in the countries they are migrating
from (1)
• the unemployment rate may be falling whilst it may be rising in their own
countries (1)
• there may still be job vacancies in areas that they have skills in (1)
• people may move to set up a firm (1) as wage cost may be lower (1)
• living conditions (1), e.g. health care/education may be better in the country (1)
• people may be escaping persecution/wars/famines or moving due to family ties (1)
• people may not be aware of the high unemployment rate (1)
• there may be fewer restrictions on migrating to the country than to other countries
(1)
• unemployment benefits may be higher in the country (1)
• the people may be rich and not have to work (1) and may be attracted by lower
prices in
the country (1)

Analyse the causes of market failure. [6]

• market failure arises when markets are inefficient/right products are not produced
in the right quantities (1) • abuse of market power (1) monopoly (1) may result in
output being restricted (1) high price charged (1) low quality (1) • decisions based on
private costs and benefits/failure to take into account external costs (negative
externalities) and benefits (1) results in under-consumption and overconsumption of
some products (1) leading to inefficient over-production and underproduction (1) •
lack of information (1) causes consumers and producers to make inefficient choices
(1) harmful products may be over-consumed (1) beneficial products may be
underconsumed (1)
(19) Explain why cash (notes and coins) is money. [4]

• cash is money as it carries out the functions of money (1) • cash acts as a medium of
exchange (1) generally accepted as payment for products (1) • cash acts as a store of
value (1) people can save their cash in order to use it in the future (1) • cash acts as a
unit of account/measure of value (1) price of products is expressed in terms of the
cash needed to purchase them (1)

(20) Explain two influences on what factors of production a firm uses. [4]

• the type of product produced/size of the firm (1) for instance, producing nuclear
power is capital-intensive (1) • the productivity of factors of production (1) if, for
instance, labour becomes more skilled, a firm might become more labour-intensive
(1) • the availability of factors of production (1) in some countries there may be a
shortage of oil or people of working age (1) • the relative cost of factors of production
(1) if capital is relatively expensive, labourintensive methods of production may be
used (1)

Common questions

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Subsidizing house building can stimulate economic activity by increasing labor demand, potentially reducing unemployment as more houses are constructed . This might lower house prices, making them more affordable, especially for the poor, thereby increasing their quality of life . However, there are potential downsides, such as opportunity costs where government funds could be diverted from other areas like education or healthcare . Additionally, there might be external costs like environmental damage or the risk of creating a housing oversupply if demand is misestimated, leading to inefficient resource use . Furthermore, reliance on subsidies could reduce efficiency in building firms .

High birth rates often originate from high infant mortality, encouraging more births as not all children are expected to survive, and a lack of support for the elderly, prompting families to rely on children as caretakers . Cultural factors like young marriages extend childbearing years, while limited contraception access and employment opportunities for women also boost birth rates . High birth rates can strain resources, hinder economic growth, and burden educational and healthcare systems, but may also support economic expansion through a growing labor force if managed properly .

Countries specialize in production they are most efficient at, influenced by factor endowments, which can lower production costs and increase productivity and efficiency . This results in lower prices and potentially improved trade balances due to increased export revenues . Specialization can enhance output, income, GDP, and living standards while enabling the import of goods produced more efficiently by other nations, leading to a greater variety of products available . This aligns with principles like comparative advantage, although the concept doesn't necessitate direct reference .

Reducing government expenditure on education and health can diminish labor quality as workforce skills and health deteriorate, leading to reduced productivity and higher wage pressures . This may increase cost-push inflation despite reduced demand-pull inflation effects from general spending cuts . However, cutting spending may redirect investment towards more efficient and competitive private sector provisions if handled appropriately . Balancing these actions involves mitigating negative socio-economic impacts while enhancing opportunities for private public partnerships and efficiency improvements .

Increasing farm size can lead to higher total output, raising total costs but potentially lowering average costs via economies of scale . Economies of scale include bulk purchasing and specialized management, which can decrease average costs . Conversely, diseconomies of scale might arise, such as worse labor relations, increasing average costs . Fixed costs might be spread over larger outputs, reducing average fixed costs, while average variable costs could decrease due to economies of scale or increase due to diseconomies .

A decline in trade union membership can diminish workers' bargaining power, potentially leading to slower wage growth and weaker employment conditions . Without strong collective bargaining, individual employees might struggle to negotiate better terms, which could impact job satisfaction and retention . However, decreasing membership might reduce operational costs for firms if they perceive unions as antagonistic, although it could also result in a less motivated workforce . On a larger scale, shifts in legislation and employer recognition of unions, combined with high union subscription costs, could exacerbate or mitigate these effects .

A fall in inflation can enhance international competitiveness by improving the purchasing power relative to other currencies, boosting demand for exports . This increased demand might necessitate higher production, leading firms to hire more workers, thereby reducing cyclical unemployment . Additionally, slower wage growth due to reduced inflation may encourage businesses to expand their workforce, and lower interest rates could stimulate investment, further boosting employment opportunities .

Price elasticity of supply is influenced by the production period; longer production times make supply less responsive to price changes due to delayed adjustments . Inability to store products means supply can't respond quickly to increased demand, causing inelasticity . During short time periods, supply tends to be inelastic due to limited capacity to scale production rapidly . Additionally, shortages of raw materials make it hard to increase production despite price rises, further exacerbating inelasticity .

Market failure occurs due to inefficiencies where optimal product quantities aren't produced, often because of monopolistic practices restricting output and inflating prices . Externalities cause over- or under-consumption, leading to misallocated resources . Information asymmetry results in inefficient consumer and producer decisions, with negative externalities like pollution or positive ones like education affecting consumption rates . Such failures can lead to reduced social welfare, necessitating intervention for markets to function more effectively .

Migration to a country with higher unemployment may occur if the rate is still lower than in the migrants' home countries or is declining relative to improving job prospects . Other factors include the presence of specific job vacancies, better living conditions, or escaping adverse conditions like persecution in their origin country . Additionally, attractive social benefits, lower costs of living, and family ties can also motivate migration despite potential economic challenges .

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