Unit 3: The Individual

 

Money

Money has allowed us to develop systems of trade that do not rely on barter. In an economy based on barter some products and commodities may perish & loose value, be difficult to transfer to another owner or to divide into small amounts.

Functions of money

Medium of exchange: Exchangeable for other goods and services.

Measure of value: Common measurement of the value of goods and services.

Store of value: Money should not loose its value over time (inflation devalues money).

Deferred payment: Money allows the true value
of a transaction to be paid at a later date.

Types of Money

• Notes and coins

• Bank accounts – money transferred through cheques & direct debits

   

   

   

   

  Central Banks

  
  

   

• The government bank:

  • Taxes paid in & government spending paid out

  • Holds foreign currency and gold reserves

  • Used for monetary policy (interest rates and control of the money supply)

• Issues bank notes and coins

• Emergency lender to banks

• Regulates the banking system

   

  Commercial banks

  
  

   

• Private sector and profit orientated

• Accept deposits and lend to the public

• Typical services offered:

  • Current/checking account (instant access)

  • Savings/deposit account (notice period for withdrawal or penalty)

  • Overdraft (borrow money instantly)

  • Loans (set amount and repayments)

  • Cheques, debit and credit cards

     

    
    

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  • The Stock Exchange
    

     

• Organization facilitating the buying and selling of shares

• Stock exchange traders are called stock brokers

• Only public limited companies can trade on the stock exchange

• Strict regulations for listing/quoted companies protect share buyers

• Share prices indices give an indication of the performance of the economy

• Most share deals are done electronically nowadays

• People buy shares for capital gains (rising values) or dividend payments  

   

   

   

   

   

   

   

   

  
  Spending and saving:

   

  People save money in various ways and for different reasons:

  Reasons for saving:

• Target saving: We need to save money for a particular thing (new TV/Car/House)

• Unexpected events: People want to have the money to cope with sudden bills (car repair)

• The future: Saving for retirement. Parents may save for education fees for their children.

   

  Factors affecting saving:

• Income: People with higher incomes find it easier to save.

• Interest rates: Higher interest rates encourage people to save as the returns are higher.

• Tax factors: If the government doesn’t tax people on interest from savings this may encourage to save more.

• Age: People of working age find it easier to save than retired people or young people.

  
  

   

  Factors effecting spending:

  Individuals spend to buy to goods and services that they want or require. There are several factors that effect peoples spending choices:

• Disposable income: As this rises people tend to spend more money.

• Wealth: If peoples wealth is rising (increased share/house prices) they tend to spend more.

• Confidence: Good job prospects/booming economy encourage spending.

• Interest rates: Low interest rates encourage spending as borrowing is cheap and savings earn little money.

   

  
  Why do people choose certain jobs?

   

  The higher the wage the more attractive the job is.

  Forms of payments:

• Salary: An agreed annual amount paid monthly regardless of hours worked.

• Wages: an hourly rate so hours of worked become important.

• Piece rates: Workers paid according to their output (fruit picking)

  Overtime pay:

  Jobs offering lots of regular overtime opportunities may be attractive to workers looking to supplement their income.

  Bonuses:

  Jobs that have bonus payments related to performance are attractive to workers. It encourages workers to be increasingly productive.

  Commissions:

  Associated with jobs in the sales industries and based on employees getting a percentage of the value of a sale they make. Successful sales people can earn large commissions.

   

  Working conditions:

  Jobs in a pleasant environment, with regular breaks are attractive.

  Working hours:

  Jobs that require evening/night time and weekend work may be unattractive, especially to people with families.

  Job satisfaction:

              People often highly value being satisfied at work.

  Holidays:

              Jobs that offer more holidays are attractive (teaching)

  Pensions:

              The type and generosity of pension provision by an employer can vary.

  Fringe benefits:

              Company car, health insurance, free meals etc

   

  
  Specialization

   

  Specialization of labor focuses workers on a single task or a small range of tasks.

  Firms hope that specialization will lead to lower costs.

• Workers should become more efficient at the task if they continually practice it

• It should be quicker to train workers if they only need to learn a small range of skills

• Specialization in production line saves time and money as workers do not have to move to the next machine

  
  Trade unions

   

• Trade unions are organizations of workers that negotiate with their employers about wages, working conditions and working hours.

• By bargaining collectively, workers have more influence/power

• If workers want to be represented by a trade union they must become a member. Members pay a fee to the union for representing them.

• Trade unions also mean that employers don’t have to negotiate with each individual worker. A single union agreement may exist in workplaces where only union represents all the workers, this gives the union more influence and employers only have to deal with one union.

• Trade unions can try and restrict the supply of labor to an industry, or increase the productivity of the workers to raise wages.

• If wages and working conditions are improved but the productivity of workers does not rise then the firm will become less competitive as it has higher costs. This could lead to conflict between firms and unions.