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365 Cards in this Set
- Front
- Back
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What are the three questions every society answers? |
What gets produced and how much? Which technologies and researches are we going to use? Who gets these goods and how are they distributed (need; income)? |
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Example of Central Planning |
North Korea and Soviet Union |
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Who makes decisions in central planning? |
individuals or small groups |
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Four points for central planning |
agrarian societies government programs sets prices and goals for the group individual influence is limited |
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Example of government programs |
rent control in NYC |
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In the market, buyers and sellers... |
signal wants and costs |
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Two points for the market |
interaction of supply and demand answer the three basic questions |
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What question is asked in the market? |
Where can we make buyers and sellers equally happy? |
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The market for any good consists of... |
all the buyers and sellers of the good |
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Buyers and seller have different motivations -Buyers want to... -Sellers want to... |
benefit from the good make a profit |
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Maker price balances two forces -Value... -Cost... |
buyers derive form the good to produce one more unit of the good (marginal cost) |
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A demand curve illustrates... |
quantity buyers are willing to buy at each possible price |
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Demand curves have a ________ slope. |
negative slope |
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Why does a demand curve have a negative slope? |
consumers will buy less at higher prices and more at lower prices |
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The buyer's reservation price is the... |
highest price the buyer is willing to pay for something. |
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Demand reflects... |
the entire market, not one consumer. |
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Lower prices bring ____ _______ into the market. |
more buyers |
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Lower prices cause existing buyers to ___ ____. |
buy more |
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What is the substitution effect? |
Buyers switch to substitutes. "substitute" away from the expensive good |
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What is the income effect? |
Overall purchasing power goes down |
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What is the horizontal interpretation of demand? |
given price, how much will buyers buy? |
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What is the vertical interpretation of demand? |
Given the quantity to be sold, what prices the marginal consumer willing to pay? |
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The supply curve illustrates... |
quantity of a good that sellers are willing to sell |
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When do sellers offer more? |
When price is less than opportunity cost |
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Opportunity cost differs among sellers due to what four things? |
technology skills costs such as rent expectations |
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A seller must be paid a higher price to make him sell more, this is due to the... |
increasing opportunity costs/increasing marginal costs. |
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The seller's reservation price is the... |
lowest price they are willing to sell for. |
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Seller's reservation price is equal to... |
Marginal cost. |
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What is the Horizontal interpretation of supply? |
Given price, how much will suppliers offer? |
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What is the vertical interpretation of supply? |
Given the quantity to be sold, what is the opportunity cost of the marginal seller? |
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A system is in equilibrium when there is... |
no tendency to change our behavior (quantity supplied = quantity demanded) |
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The equilibrium is the price at which the... |
supply and demand curves intersect |
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The equilibrium quantity is the quantity at which... |
supply and demand curves intersect |
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The market equilibrium occurs when... |
quantity supplied = quantity demanded |
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In market equilibrium, there is... |
no tendency to change price or quantity |
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Sellers are willing to sell more than buyers will buy |
surplus |
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Buyers are demanding more, but the sellers are not willing to sell that much |
shortage |
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When price goes up, quantity demanded ____________. |
decreases |
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What do lower prices do to surplus? |
decrease it |
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As price decreases, the quantity offered for sale... |
decreases along the supply curve |
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As price decreases, the quantity demanded... |
increases along the demand curve. |
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Automatic Adjustment says that, each supplier has an... |
incentive to increase the price in order to sell more. |
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What do higher prices do to a shortage? |
decrease it |
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As price increases, the quantity offered for sale... |
increases along the supply curve |
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As price increases, the quantity demanded... |
decreases along the demand curve |
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A price ceiling is... |
max price allowable set by law. |
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Rent controls set a ... |
max price that can be charged for a given apartment |
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If the controlled price is below equilibrium, then quantity demanded __________. |
increases |
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If the controlled price is below equilibrium, then quantity supplied _________ and a __________ results. |
decreases shortage |
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If the price ceiling is greater than or equal to equilibrium price... |
nothing happens. |
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If buyers are willing to buy more at each price, then demand has _________. The ______ demand curve shifts to the _____. The change happens in demand, not in ______. |
increased entire right price |
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If buyers are willing to buy less at each price, then demand has _________ and you move the _____ demand curve to the ____. |
decreased entire left |
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Price of complementary goods |
If price goes up for good 1, the demand for good 2 decreases. |
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Two examples of sets of complementary goods |
hot dogs and hot dog buns lens and frames |
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Price of substitute goods |
If price goes up for good 1, the demand for good 2 increases. |
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Example of substitute goods |
coke and pepsi |
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income goes up, buy more |
normal goods |
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income goes up, buy less |
inferior goods |
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If there are more buyers, demand _________. |
increases |
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Expectations about the future |
If you expect income to go down or up, buy less/more. |
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Price changes _____ cause a shift in ______, only ________ _________. |
never demand quantity demanded |
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Six causes of shifts in demand |
price of complementary goods price of substitute goods income Preferences Number of buyers in the market expectations about the future |
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If rent for tennis court decreases, demand for tennis balls __________. |
increases |
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Tennis courts and tennis balls are _____________ _____. |
complementary goods |
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Supply increases when sellers are willing to... |
offer more at every possible price |
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What happens when supply increases, moves the entire supply curve to the _____. |
right |
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Supply decreases when sellers are willing to... |
offer less at every possible price. |
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When supply decreases, the entire supply curve moves to the ____. |
left |
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Five causes of shifts in supply |
a change in the price of an input A change in technology Weather (agricultural commodities and outdoor entertainment) number of sellers in the market expectation of future price changes |
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Example of a change in labor costs |
Cream cheese and milks: price of milk decreases, supply of cream chess increases |
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Example of a change in technology |
computers can decrease costs, making suppliers willing to sell more |
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Example of weather |
drought |
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Example of the number of sellers in the market |
sellers enter market, supply increases |
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Example of expectation of future price changes |
expect price to decrease, try to sell more |
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Price changes _____ cause a shift in _____, only in ________ ________. |
never supply quantity supplied |
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Buyers desire an item more if... |
price or quantity go up |
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Costs of production affect... |
the supply of a product |
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An increase in demand will lead to an ________ in equilibrium price and an ________ equilibrium quantity. |
increase increase |
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A decrease in demand will lead to a ________ in equilibrium price and quantity. |
decrease |
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An increase in supply will lead to a(n) ________ in the equilibrium price and a(n) ________ in the equilibrium quantity. |
decrease increase |
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A decrease in supply will lead to an _______ in the equilibrium price and a(n) _______ in the equilibrium quantity. |
increase decrease |
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When you draw a change in supply and demand, you should always draw it to where... |
the quantity looks unchanged |
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If externalities are not represented... |
then the market isn't best. |
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benefit to others |
positive externalities |
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cost to others |
negative externatlities |
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Amount that you sell should... |
reflect opportunity cost of making the product |
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Market communicate information effectively Value... Opportunity... |
buyers place on the product costs of producing the product |
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markets... |
maximize the difference between benefit and costs |
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Market outcomes are the best provided that -The... No... |
market is in equilibrium cost or benefits are shared with the public |
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Two things that must be true: |
Marginal Social Benefit = Marginal Social Cost Marginal Public Cost = Marginal Public Benefit |
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Buyers Surplus is equal to buyer's ___________ _____ minus ______ _____. |
reservation price market price |
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Seller's surplus is equal to ______ _____ minus the seller's ____________ _____. |
market price reservation price |
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was willing to pay more |
buyer's surplus |
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was willing to sell for less |
seller's surplus |
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Total Surplus = |
buyer's surplus + seller's surplus |
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There is no cash on the table when... |
surplus is maximized |
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When surplus is maximized, there is... |
no opportunity to gain from additional sales or purchases and buying or selling more won't benefit either party |
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The socially optimal quantity maximizes _____ ________ for the economy from producing and selling a good |
total surplus |
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Economic efficiency |
all goods are produced at their socially optimal level (MSB=MSC) |
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Efficiency Principle: equilibrium price and quantity are efficient if: sellers... buyers... |
pay all cost of production receive all benefit of the purchase |
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Efficiency: ________ ____ equals ________ _______ -Production is efficient if _____ ______ is maximized. |
marginal cost marginal benefit total surplus |
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Producers sometimes shift... |
the cost to others (pollution) |
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When costs are shifted, supply is ________ than socially optimal |
greater |
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If buyers create benefits for others, marginal benefit is... |
less than the full social benefit |
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The demand for a good with social benefits is ____ than socially optimal. |
less |
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Equilibrium Principle |
A market in equilibrium leaves no unexploited opportunities for individuals |
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Equilibrium principle BUT it may not exploit all gains achievable through _________ _______. Only when the seller _____ ___ ____ ______ ___ __________ and the buyer _________ ___ ____ ________ __ ____ ____ is the market outcome socially optimal --Regulation, taxes and fines, or subsidies can move the market to optimal level |
collective action pays the full cost of production captures the full benefit of this good |
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To find equilibrium mathematically... |
set the supply and demand equations equal to each other. |
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the study of economics as a whole |
Macroeconomics |
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GDP |
Gross National Product |
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______ is not always a perfect measure of well-being. |
Output |
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What is GDP measuring? |
Output |
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What does per capital mean? |
per person |
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Gross Domestic Product is the ______ _____ of _____ goods and services produced __ _ ________ in a given period of time. |
market value final in a country. |
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Aggregate measure of quantities produced |
market value |
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How do you get the GDP using market value? |
add up the market value of all the final olds and services produced in a country during a given period |
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What is a drawback of market value? |
Not all economically valuable goods and services are sold in the market. |
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Examples of goods and services not sold in the market |
government goods and services black market |
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Any sort of government inefficiency will make us... |
overestimate the GDP if valued at cost |
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Final goods and services are... |
consumed by the ultimate user. |
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Final goods and services End... Included... |
product of production in GDP |
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Intermediate goods and services are... |
used up in the production of the final goods |
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What are not included in the GDP to avoid double counting? |
intermediate goods and services |
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Example of a good that can be final and intermediate |
Milk (sold in store or sold to restaurants) |
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The last time a transaction occurs is the... |
ultimate user |
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A capital good is... |
long-lived, used in production of other goods and services |
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Houses, apartments, motels, stoves in restaurants, cooking schools, delivery vehicles and taxes |
capital goods |
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Money is... |
not a capital good. |
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"Domestic" in GDP means... |
the activity is measured within a country's borders |
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Does the nationality of the company or maker matter? |
No, the only thing that matters is where the item is produced. |
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Value must be produced... |
in the year considered |
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What year is considered for GDP? |
The year it is bought, because that is when value was added. |
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Value added is the... |
market value of the product minus the cost of other inputs purchased from other firms. |
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If bread is made in December 2013 and sold in January 2014, just the value added from... |
the grain and flower is counted toward 2013 GDP. |
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For an old house being sold, what is counted toward GDP? |
Just what the commission for the real estate agent was. |
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What are the four users for final goods? |
households firms governments foreigners |
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Amount spent = |
market value |
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GDP can be measured in two ways: |
market value total spending |
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Consumption expenditure is... |
spending by households for goods and services |
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Consumer durables are... |
longer-lived goods |
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Three examples of consumer durables |
cars furnitures appliances |
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Consumer non-durable goods are... |
short-lived goods. |
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Two example for consumer non-durable goods |
clothing food |
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Services are the largest component of... |
consumer spending. |
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Three examples of consumer spending |
education taxi salon |
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Investment is... |
spending by firms on final goods and services by a private company. |
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Business Fixed Investment is... |
purchases of new capital goods. |
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Examples of business fixed investment capital goods (3) |
plant property equipment |
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Residential Investment is... |
construction of new homes and apartments |
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Inventory Investment is... |
the change in unsold goods to the company's inventory |
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Inventory Investment 2 points |
These goods are produced, but not yet sold This entry can be positive or negative |
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buying a stake in the company; transferring ownership |
stock |
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Financial Investment... |
includes purchases of stocks, bonds, and other financial costs. |
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Financial Investment purchases generally ________ _________ of a portion of the firm's _______ capital stock. |
transfers ownership existing |
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Financial Investments do not correspond to any... |
increase in physical capital or production capacity, in mist cases. |
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What is an exception to the rule about financial investments not corresponding to increases in physical capital or production? |
New stock issues |
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Economic investment refers to the... |
increase in capital goods used to produce other goods. |
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What is the value of economic investment based on? |
purchase price of the capital goods, not on stock value. |
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How do you get the value for an item? |
the amount that you pay for it is the value. |
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Government purchases are... |
final goods and services bought by federal, state, and local governments. |
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Three examples of government purchases |
fighter jets teaching office supplies |
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Transfer payments are made by government but the government receives... |
no current good or service. |
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Two examples of transfer payments that don't count toward GDP |
social security foodstamps |
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Why do exports count toward our GDP? |
because they are produced here |
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Net Exports = |
(Exports-Imports) |
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Exports are goods and services produced... |
domestically and sold abroad |
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Imports are purchases... |
in the U.S. of goods and services produced abroad |
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GDP Expenditures Equation |
Y = C + I + G + NX |
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Income Approach to GDP; GDP = |
Labor Income + Capital Income |
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Labor income is... |
wages, salaries, benefits, and income of the self-employed |
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Capital income pays for... |
physical capital, and intangibles |
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Four examples for capital income |
profit for business owners rent for land interest to bond owners royalties |
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Everything that you spend goes to... |
someone's income |
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Two reasons GDP changes over time |
prices change quantity of output changes |
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To see how much output has grown, use only... |
the changes in quantity and hold price constant |
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Nominal GDP values... |
output in the current year at current prices |
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Nominal GDP is the... |
current dollar value of production. |
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Real GDP values output... |
in the current year using prices from the base year. |
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The base year is a... |
reference year that changes infrequently |
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Real GDP measures the... |
physical volume of production |
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How do you calculate real GDP? |
Using current year quantities and base year prices |
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Usually, nominal and real GDP... |
increase each year. |
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What causes nominal GDP to go up and real GDP to go down? |
Producing fewer goods and services and prices are going up faster than the decrease in output. |
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Nominal GDP will be smaller than real GDP if the prices in the current year are.... |
less that the base year, which is usually true for years before the base year. |
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Real GSP could rise and nominal GDP could fall if what happens? |
Price is falling faster than output is increasing. |
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GDP is used as a... |
proxy for well-being, but this is flawed. |
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Why is Real GDP a flawed measure or well being (two reasons)? |
It values only market transactions Omits illegal transactions, volunteer work, household production. |
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Three points for "Amount of Leisure has increased in the past 100 years" |
shorter work weeks enter labor force older retire earlier |
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Leisure produces __ _____ for market. |
no goods |
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GDP places ____ value on leisure time. |
zero value |
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What is the opportunity cost of leisure? |
your hourly wage |
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By omitting leisure from GDP, we... |
underestimate GDP |
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What are three services that are not traded in market? |
household production volunteer services barter goods |
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Nonmarket activities are important in... |
poor countries |
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Underground economy is... |
all unreported transactions legal and illegal |
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Casual labor is... |
often paid in cash (babysitters, lawn services) |
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Some underground activity is... |
illegal (dealers, bookies, fences. |
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Estimates suggest the underground economy is large... |
regardless of national income level. |
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No adjustment is made for the decline in resource availability when... |
mining or other harvesting is done. |
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Environmental quality and resource depletion are... |
difficult to value |
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Five intangibles people value (not included in GDP) |
crime rate traffic congestion civic organizations open space sense of community |
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GD does not capture the effects of... |
income inequality |
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U.S. uses an ________ standard of poverty |
absolute |
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Over time, absolute poverty has been ___________, but income inequality has been ___________. |
decreasing increasing |
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GDP omits and _____ ______ some goods and services. |
under values |
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GDP per capita is _____________ ____________ with several measures of well-being. |
positively associated |
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How much of GDP comes from consumer spending? |
70% |
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Two points for prices of goods changing over time |
adjust values, incomes, and spending for changes in price constant purchasing power |
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Inflation increases uncertainty when planning for the future. For example: |
you don't know what your savings will be worth in a year. |
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The consumer price index (CPI)... |
is a measure of the cost of living during a particular period. |
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The CPI measures... |
the relative cost of a standard basket of goods and services in a given year to the relative cost of a standard basket of goods and services (the same basket) as the base year. |
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What is the CPI ratio? |
current year/base year |
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a list of goods and services; the same every year |
basket of goods |
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How do you tell percentage increase in cost of living? |
CPI2/CPI1= CPI |
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A price index... |
measures the average price of a given class of goods and services relative to the base price of the same goods and services. |
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CPI Measures... |
change in consumer prices |
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What are other ways to get measures of the change in prices (3) |
core inflation is CPI without energy and food producer price index (all the stuff producers spend money on) Import/export price index |
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Inflation rate is the ______, while inflation is the ________. |
number process |
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Nominal GDP goes up with inflation, but... |
we don't care about that. |
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The rate of inflation is... |
the annual percent change in the price level. |
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Inflation rate = |
CPI2-CPI1/CPI1 |
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Deflation is... |
when inflation rates are negative (prices are going down) |
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Negative inflation rates are... |
not very common. |
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Inflation and deflation are talking about... |
prices as a whole. |
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Things can get hasty when... |
inflation rates are really high or really low |
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A nominal quantity is... |
measured in terms of current dollar value and capture increasing prices |
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A real quantity is... |
measured in physical terms and measures quantities of goods and services |
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To compare values over time... |
use real quantities |
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What is deflating? |
a nominal quantity converted to a real quantity |
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How do you find real quantity? |
divide a nominal quantity by its CPI to express quantity in real terms. |
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Indexing... |
increases a nominal quantity each period by the percentage increase in a specified price index |
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Indexing automatically adjusts certain values, such as Social Security payments, by... |
the amount of inflation |
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Indexing is sometimes included in... |
labor contracts |
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Minimum wage... |
is not indexed |
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Real minimum wage is... |
1/3 of what it was in 1980 |
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CPI and other indexes... |
influence policy decisions and wage increases. |
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One important bias in the CPI is its... |
measurement of price changes but not quality changes |
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Why is adjusting for quality difficult? |
large number of goods subjective differences |
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Why is incorporating new goods difficult? |
no base year price for this year's new goods |
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CPI uses a _____ basket of goods and services. |
fixed |
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Three points for a fixed basket of goods and services |
doesn't account for substitutes when price goes up, customers substitute away from expensive goods to cheaper goods. CPI fails to account for substitution effects,overstating inflation |
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The price level is... |
a measure of the overall level of prices at a particular point in time. |
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How do you measure price level? |
By a price index such as the CPI |
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The relative price... |
of a specific good is a comparison of its price to the prices of other goods and services (calculated as a ratio) |
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The higher you make on the tax bracket... |
the more money is taken |
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Noisy price |
static in communication; relative price increasing or inflation |
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Two examples of the distortion of tax system |
indexed income to avoid bracket creep capital depreciation allowance |
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Inflation increases the Cost of Cash |
Cash is worth less |
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Unexpected redistribution of wealth |
high inflation |
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What is hyperinflation? |
Numbers are really really high (400%) |
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Responding to changes in price... |
takes time. |
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Unanticipated inflation helps... |
borrowers and hurts lenders |
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What is the real interest rate |
annual percentage increase in purchasing power of financial assets |
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Real interest rate= |
nominal interest rate - inflation |
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what is the nominal interest rate |
annual percentage increase in the nominal value of an asset |
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Nominal interest rates are the... |
most commonly stated rates |
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Nominal interest rates and inflation... |
vary |
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For a given nominal interest rate... |
the higher the inflation rate, the lower the real interest rate |
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Expected inflation may not hurt lenders if they can... |
adjust the nominal interest rates |
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Inflation protected bonds pay a real rate of interest... |
plus the inflation rates |
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What is the Fisher effect? |
nominal interest rates are higher when inflation is high and lower when inflation is low |
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How do they measure unemployment? |
By counting part-time jobs and not people who aren't looking. |
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purchasing power, cannot compare |
Real |
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In 2010, U.S. real earnings are about _____ real earnings in 1960. |
twice |
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In 2010, U.S. real earnings are nearly ____ times real earnings in 1929. |
five |
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The annual rate of ____-____ growth is uneven. |
real-wage |
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Between 1960 and 2010, average real weekly earnings of production workers _________. |
decreased |
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Between 1960 and 2010, real wages of the least-skilled, least-educated workers decreased... |
25 to 30%. |
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Between 1960 and 2010... |
GDP per capita doubled |
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Income with an advanced college degree is _____ _____ the income of a high school graduate. |
three times |
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Income with an advanced college degree is ____ _____ the income of a worker who did not graduate from high school. |
four times |
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In 1970, 57% of the ____-__ population had jobs |
Over 16 |
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In 2007, __ % worked |
63 |
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Between 1980 and 2007, employment increased __% and at the same time over-16 population increased __%. |
46 38 |
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Job growth is the US has ___ ________ in other industrialized countries |
not occurred |
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Full employment is not... |
0% unemployment rate |
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Supply and demand analysis can be used to find... |
the price of labor (real wages) and the quantity (employment). |
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Analysis will consider the... |
number of workers employed, not work-hours per year. |
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Who purchases labor? |
firms (demand) |
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Who sells labor? |
employees (supply) |
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Macroeconomics look at.. |
aggregate levels of employment and real wages (across industries). |
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Macroeconomics looks at wage... |
determination for a category of workers |
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The demand for labor depends upon two things: |
The productivity of workers The price of worker's outputs. |
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Greater productivity _______ employment |
increases |
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A higher real price ________ employment. |
increases |
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What is marginal product? |
the extra product that an additional worker generates |
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Diminishing returns to labor -Assumes non-labor inputs are held constant. -Adding.... |
one worker increases output by less than the previous worker added |
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Value of Marginal Product (VMP) is... |
extra revenue added a worker generates |
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Price is the ____. Quantity is the _______. |
wage workers |
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Hire an extra worker if and only if... |
the VMP exceeds the wage paid. |
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The lower the wage, the... |
more workers employed. |
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What kind of slope does the demand curve have? |
negative |
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Demand shifts when the _____ __ ___ ________ ________ __ _ worker changes. |
value of the marginal product of a |
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Two factors that determine the demand (VMP) for labor |
the price of a company's output the productivity of workers |
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One point for the price of company's output |
an increase in market demand |
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Three points for the productivity of workers |
greater quantity of non-labor inputs organizational change training and education |
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If the price of computers increases, demand for labor shifts _____. |
right |
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There is a separate demand for labor curve for... |
each possible output price. |
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An increase in the price of workers' output... |
increases the demand for labor. |
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We demand less workers when... |
the price of an output decreases |
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We can demand more workers because... |
one worker is worth more. |
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lowest price I'm willing to charge for your payment |
reservation price |
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Reservation wage is... |
the lowest wage of a worker would accept for a given job |
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Opportunity cost of working is... |
leisure. |
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Work compensates you for ____ _______. |
lost leisure |
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If working conditions are unpleasant or dangerous, a... |
premium for that would be included in the wage |
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Two macroeconomic determinants of labor supply |
size of the working age population share of working-age population willing to work |
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If the work force is larger, then there is... |
more supply |
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Three points for the size of the working age population |
domestic birthrate immigration and emigration ages when people enter and retire from the workforce |
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The earlier the retiring age... |
the less supply |
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More people willing to work... |
more supply |
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The labor supply curve slopes up because... |
the higher real wage, the more people willing to work |
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A shift in the labor supply is caused by any... |
change in the number of workers willing to work at each wage |
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Three points for the increase in the working age population |
baby boom higher net immigration increasing age at retirement |
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One point for increase in the share of working age population willing to work |
Women's participation in the labor force has increased in the last 50 years |
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Industrialized countries have had sustained growth in productivity in the 20th century (2 points) |
increase in demand for labor real wages and employment increases |
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Productivity increases were due to...(2) |
technological change/innovation increases in capital |
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Slow growth in real wages could be either (2) |
slower growth in demand for labor faster growth in supply of labor |
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Productivity growth and real wages.... |
move together |
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Slower demand growth explains slower wage growth, but does not explain _____ ______ in employment. |
rapid growth |
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There are more people employed... |
now than before. |
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When both the demand and supply curve are shifting out... |
wage growth/loss can be ambiguous |
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Those in lower skilled jobs have seen.... |
rapid decline in their wages |
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Trade is often... |
more efficient |
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Globalization results in an... |
expansion of many markets to worldwide supply. |
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What is the benefit of globalization? |
increased specialization and efficiency |
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Globalization also means that some goods produced domestically are... |
no longer competitive |
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Two points for why goods produced domestically are no longer competitive |
can not continue doing what they've been doing because someone else does it better causes some domestic goods to shrink |
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When wages in importing industries fall and wages in exporting industries rise, wage inequality _____. |
rises |
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Low skill industries tough competition internationally... |
political resistance to free trade grows |
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Worker mobility... |
is the movement of workers between jobs, firms, and industries. |
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One point for worker mobility |
market move workers out of tech and into software |
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Technological change can be a source of increasing wage inequality -occurs if technical change favors... -some innovation renders old skills ____ ________. |
higher-skilled workers or better educated workers less valuable |
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Skill-based technological change... |
affects the marginal products of higher-skilled workers |
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Two points for skill-biased technological change |
recent changes favor higher-skilled workers automobile production lines increasingly use robots |
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_______ __ _____ _________ estimates employment and unemployment monthly |
bureau of labor statistics |
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labor force = |
employed + unemployed |
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unemployment rate = |
unemployed/labor force |
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participation rate = |
labor force/population 16+ |
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What is the criteria for employed? |
counting people who worked in the last four weeks for money |
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What is the criteria for unemployed? |
not employed, but willing to work and currently seeking work |
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What is the criteria for "not in the labor force"? |
not working, and could not take a job immediately if offered one |
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Two economic costs of unemployment |
lost wages and production decreased taxes and increased transfer payments |
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Two psychological costs of unemployment |
self-esteem family stress due to decreased income and increased uncertainty |
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Two social costs of unemployment |
potential for increased crime and social problems community resources to address these problems |
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the longer you're unemployed... |
the higher the cost |
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Unemployment spell is the... |
period during which an individual is continuously employed |
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Duration of Unemployment is... |
length of the employment spell |
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Long-term unemployed have been out of work for... |
6 months or longer |
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Short-term unemployment have several possible outcomes (3) |
find a permanent job after searching a few weeks leave the labor force short-term or temporary job that leads to unemployment again |
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one example for finding a permanent job after a few weeks |
economic costs are low |
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One example for short-term or temporary job |
these chronically unemployed have costs similar to the long-term unemployed |
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Discouraged workers... |
would like to have a job, but they have not looked for work in the past 4 weeks. |
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Counted out of the labor force -_______ ___ _____ __ ____ -could be counted as ___________ but they are ___ |
willing and ready to work unemployed not |
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Involuntary part-time workers are people who like to work full-time but cannot find a full-time job -counted as ________ |
employed |
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when workers are between jobs |
frictional unemployment (good) |
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two points for frictional duration |
short in duration, have low economic cost may even increase economic efficiency |
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Cyclical unemployment... |
is the increase in unemployment during economic showdowns (bad) |
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Two points for cyclical unemployment |
short (usually) economic cost is the decline in real GDP |
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Structural unemployment... |
is long term chronic unemployment in a well-functioning economy. (ugly) |
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Three points for structural unemployment |
lack of skills, language barriers, or discrimination structural shifts in production create a long-term mismatch between workers and market needs high economic, psychological, and social costs |
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your skills don't match the skills that the job need |
long-term mismatch |
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Three examples for structural unemployment |
U.S. steel telecommunications manufacturing |
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Four structural barriers to employment |
minimum wage laws unions unemployment other government regulations |
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If minimum wage is above equilibrium wage... |
there is a surplus (more people willing to work, less jobs) |
