{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Summary14 - for labor will result in unemployment 4 How can...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 14 SUMMARY: 1. Are classical economists ones who listen to Mozart? Classical economists believe that wages adjust in the labor market so the quantity demanded of labor equals the quantity supplied. In this view, unemployment consists only of frictional and structural components. 2. Is it possible that involuntary unemployment does not exist? How can this be? According to classical economists, unemployment increases when the demand for labor declines because some people are not willing to accept the lower equilibrium wage rate, preferring to try to find work at higher wages. In this view, these people are voluntarily unemployed. 3. Does "sticky wages" refer to paychecks with gum on them? Wages may be more flexible in the upward direction than in the downward direction. In other words, wages seem to be "sticky" downward. If wages do not fall readily, declines in the demand
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: for labor will result in unemployment. 4. How can an increase in the minimum wage cause unemployment? An effective minimum wage raises wages above the equilibrium wage rate. This causes a surplus in the labor market. This surplus is called unemployment. 5. Are there other reasons for unemployment? The efficiency wage theory maintains that employers may pay wages higher than the equilibrium wage rate. This will cause some unemployment. Another theory claims that imperfect information exists in the labor market and that firms, not knowing the equilibrium wage rate, may offer wages above this rate. 6. Is there such a thing as having too little unemployment? Is there a downside to having lots of people working? If unemployment falls too low, wages and prices may start to rise. Too little unemployment, therefore, can lead to an increase in inflation....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern