Week 2 Inefficient Firms

Week 2 Inefficient Firms - Chapter 7 problem#2(pages...

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Chapter 7, problem #2 (pages 137-138). Explain your analysis in a post not to exceed 200 words. Respond to at least two of your classmates' postings. When an inefficient firm or a firm producing a product that people no longer want goes out of business, people are unemployed, but that is part of the normal process of economic growth and development. The unemployment is part of the natural rate and need not concern policy makers. Discuss that statement and its relevance to the economy today. Some unemployment is inevitable. New workers are continually entering the labor force, as industries  and corporations have to continually adapt to the differences in demand of the products being produced.  This is due to expansion and contracting. There is also a constant cycle as workers are always in search of  a job or firm that matches where they feel that they want to be in association to what is available. This  unemployment is both natural and beneficial for the economy. Cyclical Unemployment  occurs "when the unemployment rate moves in the opposite direction as  the Gross Domestic Product growth rate. So when GDP growth is small (or negative) unemployment  is high." When the economy goes into recession and workers are laid off, we have cyclical  unemployment.  This is where our economy is to this date. Frictional Unemployment : is "unemployment that comes from people moving between jobs,  careers, and locations." If a person quits his job as an economics researcher to try and find a job in  the music industry, we would consider this to be frictional unemployment.  Structural Unemployment : is "unemployment that comes from there being an absence of demand  for the workers that are available". Structural unemployment is often due to technological change. If  the introduction of DVD players causes the sales of VCRs to plummet, many of the people who  manufacture VCRs will suddenly be out of work.
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