Ch 6 notes - If there is an increase in demand then firms...

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If there is an increase in demand then firms react by increasing production o Higher production -> higher employment -> lower unemployment -> higher wages -> increase in production costs -> firms increase prices -> higher prices-> workers ask for higher wages -> increase prices and so on Ignored this in previous chapters for short run o Since assume firms were flexible with supply; supply any amount at any given level However, medium run different Total population over 300 million People capable of working (not under age or in bars) = over 230 mil People are working or looking for a job – over 150 mil The people not working or not even looking are 80 mil Participation rate – labor force/ people capable of working Unemployment rate – unemployed/labor force Better estimate is employment rate The lower the unemployment, the higher the wages Bargaining power depends on two factors How costly it would be for the firm to replace him

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