What are the costs of high unemployment?

Unemployment is the number of workers (of working age) without a job who are willing and able to work. There are three types of unemployment: structural, frictional and seasonal. Frictional unemployment happens when a person may be looking for another job, after transferring from a previous job. Structural unemployment is when there is a sudden decrease in the demand for a certain industry (perhaps because of competition), therefore there is less need for workers. Seasonal unemployment is when the amount of workers needed changes because of the time in which the industry does well (for example fruits and such that only grow in certain time of the year).

When there is a high unemployment rate, it means that many of the workers in the economy are unemployed. This can affect the economy in many ways. For example, there is an obvious loss of output in the economy as the aggregate supply (employment is part of AS) is low. This also leads to a loss of profit. Also, there is a loss in tax revenue as the government has less incomes to tax. Because average price levels would go down, the government needs to increase expenditure. High unemployment can also lead to a lower demand, which also causes productivity to fall.

In this article from CNN Money, there was a sudden increase of unemployment rates of Black people in the United States. This happened because of the Black people striking in attempt to change the employment inequalities. Although, this article does not mention the effects of this sudden decrease.

The article is at: http://money.cnn.com/2011/09/02/news/economy/black_unemployment_rate/index.htm

 

An article from BBC states how unemployment rates remain high in the United States. This is leading to a lot of problems in the economy as it is very hard to grow, and the interest rates remain also very low. The government is doing its best to lower the unemployment rate but is having a hard time.

The article is at: http://www.bbc.co.uk/news/business-11678022

 

 

Inflation and Unemployment Rates of the UK

Over the past ten years in the United Kingdom, there has been a progressive increase in the inflation rates. The inflation rate reached a peak about two or three years ago, but is still quite high.

Similar to the inflation rates, the unemployment rates have shown increase in the past ten years. As with the inflation rate, the unemployment rate reached its peak two or three years ago. It remains quite high right now.

Solution for Silver Cougars of America

The Silver Cougars of America, a group representing the retired and elderly people of the country, complain that the prices for standard living essentials have increased. This increase, Angela Soracco predicts, is caused by the inflation. She claims that “Our dollars can no longer stretch far enough to afford the basic necessities of living: rent, food and health care.” While they try to rely on Social Security, the payments will “further limit [their] ability to by basic necessities”.

Acknowledging the fact that these elderly people are the ones who have worked most their lives to contribute to the economy, we will attempt to solve these problems. Since these high prices is are caused by inflation, there are two possibilities; either the inflation is cost-pulled or demand-pulled.

Cost-pull inflation  

As shown above, an decrease in aggregate supply can cause inflation and pull the prices up from P1 to P2. A left-shift in aggregate supply can be caused by a decrease in factors of production.

Demand-pull inflation

As shown above, a shift in aggregate demand can also cause inflation and cause prices to rise. There must be an increase in demand to cause an increase in price. The most likely cause for the inflation in the United States of America is the cost-pull inflation because the nation is experiencing unemployment at the same time. To solve these problems, monetary policies can be applied, where demand can be pulled down to lower the inflation. Rather than a demand-pull inflation, it may be a demand-pull deflation, while also attempting to increase aggregate supply.

Analysis of the General Trend

Change in real GDP

 As shown in the Figure 1 above, the trend is fairly linear and declining. Although there is quite a lot of variation, the change in real GDP decreases over time slowly. This suggests that the GDP is staying constant and that the economy is quite stable.

Rate of inflationIn contrast to the change in real GDP, Figure 2 shows how the rate of inflation is slowly increasing. The trend is hard to see with the points since there is so much fluctuation within the years 1970 to 1990. Although it is not shown in the graph, I believe that toward the end of this graph, there is a decrease, thus if this graph were to continue, there would be a decrease instead of an increase in inflation rates.

Unemployment rates

In the earlier years, the unemployment rates were especially high, but there has been a gradual decrease as portrayed by the trend line. However, if this graph were to continue, there may be a slight increase since at the end, an increase is suggested rather than a decrease.

Possible ‘Theory of the Firm’ Questions

1. Using appropriate diagrams, discuss whether monopoly is more efficient or less efficient than perfect competition.

2. Explain why price tend to be relatively stable in a nono-collusive oligopoly.

3. With the aid of at least one diagram, explain one way a consumer might gain from the behavior of a monopolist and one way a consumer might lose from the behavior of a monopolist.

4. In a theory of the firm, a distinction is made between short-run costs curves and long run cost curves. Using appropirate cost curve diagrams,explain this distinction.

5. Evaluate the view that greater economic efficiency will always be achieved in perfect competition as a compared to monopoly.

6. Using at least one diagram, explain the difference between price maximization and sales revenue maximization as goals of the firm.

7. Explain how a firm operating in an oligopolistic market might attempt to increase its market share.

8. Explain the view that producers, and not consumers, are the main beneficiaries of oligopolistic market structures.

9. With the help of a diagram, explain when a firm should shut down in the short run.

10. Explain the concept of a natural monopoly.

11. Explain the difference between short-run equilibrium and long run equilibrium in monopolistic competition.

12. “Perfect competition is a more desirable market form than monopolistic competition.” Discuss.

13. Explain the law of diminishing returns using average and marginal product curves.

14. Explain how barriers to entry may affect market structure.

15. Evaluate the view that monopoly is an undesirable type of market structure.

16. A monopoly firm decides to maximize revenue rather than profit. Use a diagram to explain what will happen to price and quantity.

17. Explain the necessary conditions for price discrimination to take place.

18. Discuss the advantage and disadvantages of price discrimination for consumers and producers.

Portfolio

Diagrams: located in folder

Evaluation: located in folder

Collaboration: located in folder

Reflection on Problem-based learning: http://12shigra.wordpress.com/2010/10/19/98/

Reflection on Summative paper 2: http://12shigra.wordpress.com/2010/12/01/reflection-summative-paper-2/

Improvement: http://12shigra.wordpress.com/2010/09/01/water-scarcity-a-looming-crisis/ to http://12shigra.wordpress.com/2010/09/22/76/

In the scarcity blog, I lacked a real world example, but in the blog about the shift in supply curve, I had a definition, explanation as well as real world example (illustrated by article).

Showcase: located in folder

Portfolio definitions

Tennis ball game – Class activity

In class, we did a tennis ball game that demonstrated many theories of the firm. The main theories we focused on was increasing and diminishing returns. The increasing returns is when the scale of production increases. Diminishing returns, on the other hand, is when the scale of production decreases. Both of these can be found on the TP (total product) curve, showing how many tennis balls were produced with a certain amount of workers. When the curve increases, that shows increasing returns, and when the slope shows decrease, that shows diminishing returns.

As the amount of workers increased, theoretically, the amount of production should increase. But, as shown in our experiment, that rarely happened. The reason for this is because as new workers came in, but were not well trained. Also, the most expert workers, who were in the firm longest, got bored and didn’t do so well at the end. Also, at the end, the curve shows diminishing returns and no increase in production. This is because as too many workers are in the firm, they get in ea

Reflection: Summative paper 2

Similar to my past summative paper, I got in the 7-8 band. Although that was a pretty good score, considering that the topic was a bit difficult for me, I could have done better.

When I take the tests, I don’t circle key words in the question, so I sometimes miss out on how to answer the question. For example, in this test, the question was asking for the variability of the burden shared in taxes, depending on the elasticities and instead of showing two diagrams of different elasticities of demand, I showed the diagram of different taxes.

For the next test, I think that circling the key words and answering the question that way will help me get a better score.

Japan Airlines Crisis

Japan Airlines (JAL), Japan’s national airline company, suffered great losses in the beginning of 2010. Many JAL workers were cut and left without jobs. The company almost went into bankruptcy in January 2010. This was very shocking because JAL was one of the largest airline companies worldwide. How did this successful airline company collapse and suffer so much loss?

Some of the reason for this is the Japanese culture. JAL’s policy for its workers is that they have job security until retirement. This policy caused many problems, since the company had to accommodate  their workers, and also provide good retirement money when they left the company. This affected the supply of JAL because the cost to support their workers were taking a lot of their income. Another reason JAL suffered is because of government interference. Because JAL is Japan’s national airline, they have responsibilities as an airline to have many airports around the nation. However, some areas in Japan do not require an airport because barely any flights go in and out of the region. But the government forced these airports to be built, costing JAL a lot of money.

JAL also suffered greatly because of the economic recession. As the recession lowered workers’ income, the people’s demand to fly to places for vacation lowered. JAL was not making enough money because people were not buying airplane tickets as much. Also, gasoline prices were high, making the tickets even more expensive.

All these factors led JAL to suffer a lot of loss. Recently, however, JAL has been doing much better. Many Japanese airlines are expanding their business, however JAL has not made any big expansions lately-perhaps to cut down on costs.