ECON 2105 week 5 notes
ECON 2105 week 5 notes ECON 2105
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This 4 page Class Notes was uploaded by Randi on Sunday September 18, 2016. The Class Notes belongs to ECON 2105 at University of Georgia taught by McWhite in Summer 2016. Since its upload, it has received 5 views. For similar materials see Macroeconomics in Macro Economics at University of Georgia.
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Date Created: 09/18/16
Week 5 Notes ECON 2105 PROF. MCWHITE Chapter 5: The Efficiency of Markets and the Costs of Taxation • Welfare economics: o How the allocation of resources affects economic well-‐being • Equity: o The fairness of the distribution of benefits among the members of society • Willingness to pay o The value the consumer is willing to purchase a good/service for • Willingness to sell: o The value that the seller is willing to sell their good/service for • Total surplus o Also known as social welfare o Economist use this to measure the benefits that markets create • Consumer Surplus: o The difference between the willingness to pay for a good and the price that is paid to get it • Producer surplus: o The difference between the willingness to sell a good and the price that the seller recieves • Elasticity: o Measures how much one variable responds to changes in another variable o Is a numerical measure of the responsiveness of Quantity Demanded or Quantity Supplied to one of its determinants o Elastic good: § A good that is price sensitive § Absolute value of Elasticity of demand > 1 o Inelastic good: § A good that is not price sensitive § Quantity demanded decreases slower with an increase in price • Example: cigarettes § 1> Absolute value of Elasticity of demand > 0 Week 5 Notes Factors of Elasticity: 1. Number of substitutes • Goods with fewer substitutes tend to be more inelastic • Price elasticity is higher when close substitutes are available 2. Time • Price elasticity is higher in the long run than in the short run 3. Budget share • Price elasticity is higher for luxuries than for necessities • People can put off buying “wants” longer than “needs” • Excise tax: o Taxes levied on one particular good/service o The government favors excise taxes on goods that are highly inelastic § There is less Dead Weight Loss on inelastic goods § Dead Weight Loss: • A decrease in economic activity caused by market distortions, such as taxes • Taxes chase out demand and reallocate resources from their most productive use • Incidence of taxation: o The burden of taxation o Who does the tax affect the most? Consumer or seller? Week 5 Notes Chapter 7: Unemployment • A misconception is that an economy should aim for zero unemployment. o A growing economy has some unemployment o Some unemployment is natural o Natural rate of unemployment: § Typical rate of unemployment that occurs when the economy is growing normally • Labor force: o Someone who is already employed OR actively seeking work Employed + Unemployed = LF • Labor force participation rate: § The portion (percentage) of the population that is in the labor force (LABOR FORCE / ELIGIBLE POPULATION) X 100 • Discouraged workers: o Those who are not working o Have looked for a job within the past year o Are willing to work o Have not sought employment in the past 4 weeks • Underemployed workers: o Workers who have part-‐time jobs o Want a full-‐time job • Unemployed workers: o Someone not working but is actively looking for work o Types: § Structural § Frictional § Cyclical Unemployment Rate: (UNEMPLOYED WORKERS/ LABOR FORCE) X 100 • Creative destruction: o Occurs when the introduction of new products and technologies leads to the end of other industries and jobs Week 5 Notes o Some jobs become obsolete o This causes Structural Unemployment: § Caused by changes in the industrial makeup of the economy § Tastes as well as technology change… so do jobs § Learning new skills may take a long time or no time at all § A natural disaster can also cause this § Structural and Frictional unemployment will always exist to some degree in society • Frictional Unemployment: o Caused by delays in matching available jobs and workers o The time spent in between jobs for people who have a skill set that the economy needs o Another type of natural unemployment o Causes: § Information: Lack of information on what firms are hiring… it can take time to find a job § Government: Unemployment insurance programs and other job security programs don’t always incentivize people to find work • Cyclical Unemployment: o Changes in the economy will influence the number of workers hired o Caused by recessions o This type generates the greatest concern among economists and policymakers • Full employment output: o When the unemployment rate is equal to its natural rate o There is no cyclical unemployment
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