Unemployment

Causes of Unemployment

Frictional unemployment. This is unemployment caused by people moving between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment as it takes time to find a job.

Structural unemployment. This is unemployment due to a mismatch of skills in the labour market. It can be caused by:

Classical or Real Wage Unemployment. This occurs when wages in a competitive labour market are pushed above the equilibrium. This could be caused by minimum wages or trades unions.

Demand deficient or ‘cyclical unemployment.’ This occurs when there is a fall in AD, leading to a decline in national income. For example, a European recession would cause less demand for UK exports – therefore UK firms will employ less workers 


Voluntary unemployment. Generous unemployment benefits may encourage people to stay on benefits rather than get work; this is sometimes known as “voluntary unemployment”.

Policies to reduce Unemployment

Fiscal and Monetary Policy (demand side)

If there is demand deficient unemployment, the government could try expansionary fiscal policy which involves cutting income tax to boost consumer spending and aggregate demand. Or the Bank of England could cut interest rates to reduce the cost of borrowing and encourage spending. Higher AD would lead to higher output and should encourage firms to take on more workers.

However, demand side policies may cause higher rates of inflation and will not reduce supply side unemployment, like structural unemployment.

Education and training. Structural unemployment could be solved by offering retraining and new skills for the long-term unemployed. This gives a better opportunity for the unemployed to find work in new industries.

However, it would cost money, and it may prove difficult for some older workers to retrain in new industries and develop new skills.

Better job information and interview practice. This could help reduce frictional unemployment by giving the unemployed better information about available job vacancies, and also offering tips for the unemployed to get work.

Lower benefits and taxes. Lower benefits and income tax may increase the incentive for the unemployed to look for work rather than stay on benefits. This could reduce frictional unemployment.

However, benefits in the UK are already quite low; reducing benefits may increase poverty but will not create any jobs.

Reduce minimum wages. If the minimum wage is above the equilibrium, reducing it to the equilibrium will enable firms to employ more workers, which reduces real wage unemployment.

However, demand for labour may be quite inelastic; cutting wages may just make firms more profitable.

Regional grants. These can help overcome geographical unemployment by encouraging firms to set up in depressed areas or helping workers to move to areas of high demand.

However, subsidies may prove ineffective for encouraging workers to move because they may be attached to their local community. Firms may have a similar reluctance to set up in depressed areas because of a lack of infrastructure. 

Price Elasticity of Supply

Elasticity! Post 4

In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.

There are 4 types to know about for AS.

Price Elasticity of Supply (PES)
The fourth type is price elasticity of supply, which measures the percentage change in quantity supplied after a change in price.

It is measured by the following formula

Price Elasticity of Supply (PES) = %Change in Quantity Supplied/ %Change in Price

Inelastic supply means a change in price will cause a smaller percentage change in supply therefore the PES<1.
Perfectly inelastic means a change in price has no effect on supply.
Supply could be inelastic due to a company operating close to full capacity, as it may be difficult to increase supply. Low levels of stock meaningSuply may be inelastic in the short  there are no surplus goods to sell. In the short term capital is fixed meaning firs cannot build a bigger factory and increase supply. It may be difficult to imply factors of production and find relatively skilled labour to increase output. Supply may be inelastic in the short run as it may take a long time to grow crops.

Elastic supply occurs when an increase in price leads to a bigger percentage increase in supply. therefore the PES>1
Perfectly elastic supply means that at a given price, supply is unlimited.
Supply could be elastic because, there may be space capacity in a factor, there may be abundant stock available or it many be easy to employ more factors of production.

In the short run supply is more likely to be inelastic because a firm cannot increase the size of their factory.
In the long run supply can be more elastic as the firm will be able to invest in more capacity and increase supply.

Cross Elasticity of Demand

Elasticity! Post 3

In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.

There are 4 types to know about for AS.

Cross Elasticity of Demand (XED)
The third type is cross elasticity of demand, which measures how the demand for one good is affected by the price change of another.

It is measured by the following formula

Cross Elasticity of Demand (XED) = %Change in Quantity Demanded of good A/ %Change in price of good B

There are 3 types of goods in this scenario:

• Substitute
• Complementary
• Unrelated

Substitute Goods are goods that could be used as alternatives to each other. If the price of good A rises and the price of goods B remains consistent, then less will be demanded of good A and more of price B and vice versa. This means the XED will be positive.

Weak substitutes such as tea and coffee will have a low XED whereas close substitutes such as different brands of the same product e.g. Tesco Butter and ASDA Butter will have a higher XED.

Complementary goods are goods which are used together therefore XED is negative so that if the price of good A rises then the demand for good B will fall.

e.g. Shoes and Shoelaces
e.g.iPhones and charging cables

Unrelated goods are those where is the price of one good changes this will not affect the demand for the other. The goods are not related and a change in one will not affect the other.

e.g. Fireworks and highlighters 

Income Elasticity of Demand

Elasticity! Post 2

In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.

There are 4 types to know about for AS.

Income Elasticity of Demand (YED)
The second type is income elasticity of demand, which measures the responsiveness of demand to a change in income.
It is measured by the following formula

Income Elasticity of Demand (YED) = %Change in Quantity Demanded/ %Change in Income

This is very similar to price elasticity of demand, in what is measured and the way it is calculated

There are 3 types of good:

• Inferior
• Normal
• Luxury

Inferior goods occur when an increase in income leads to a fall in demand, therefore these have a negative YED. e.g. Charity Shop Clothes and Tesco Value Butter. As your income rises you can afford to buy better quality alternatives instead.

Normal goods occur when an increase in income leads to an increase in demand for the good, so the YED is larger than 0. Most goods fall under this category as an increase in income means more is demanded.

Luxury goods are those which an increase in income leads to a much larger increase in demand for this good. So the YED is greater than 1 this means demand is income elastic, for example items such as holidays, jewellery and technology.

This is important as in events such as a recession demand for luxury goods will fall and demand for inferior goods will increase, this can give firms information about the level of stock they need to produce and help them predict future demand.

Price Elasticity Of Demand

Elasticity!

In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.

There are 4 types to know about for AS.

Price Elasticity of Demand (PED)
The first type is price elasticity of demand, which measures the responsiveness of demand to a change in price.
It is measured by the following formula

Price Elasticity of Demand (PED) = %Change in Quantity Demanded/ %Change in Price

Demand is price elastic if a change in price causes a bigger percentage change in demand.

Elastic Demand Products are those that are luxury (not necessary) as they represent a large percentage of disposable income. e.g. Large Holidays. Items which also have competition also have elastic demand as consumers can switch easily. e.g. Different brands of the same product (bread) Equally products that are frequently bought are price elastic as consumers are more likely to compare prices and switch if they find an alternative. E.g Butter

Inelastic demand products are those that have few substitutes e.g. petrol, necessities meaning you have to buy them, things that are addictive, as you will pay higher prices, items that take up a small percentage of your income, meaning you worry less if prices rise, and items in the short run, as it takes time for consumers to find alternatives and switch to them.

The Economics of HS2

It is argued that high speed rail delvers many economics benefits: HS2 is a controversial project which if build would join London, Birmingham, Manchester and Leeds and would cost roughly £42 billion. The real economics argument in favour of HS2 is that it could transform the economies of the midlands and the North, it was also designed to combat infrastructure for example the UK being 27th in the World Economics's Forum's League table for quality of infrastructure. The main argument against applies on the principle of "if we build it they will come" but would this really happen? Some people argue Canary Wharf is an example of this in the UK. This issue is still mutely under discussion an interesting report is found here.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/365065/S_A_1_Economic_case_0.pdf

Black Friday

Black Friday is the day after Thanksgiving, November 27, 2015. It's traditionally the busiest shopping day of the year and kicks off the busy holiday season. The holiday shopping season is critical for the economy because around 30% of annual retail sales occur between Black Friday and Christmas. For some retailers for example jewelers, it's even higher, nearly 40%. Black Friday is set to become the biggest day of shopping in Britain, with as much as £2bn spent in shops and online in the space of 24 hours. Yet five years ago the shopping event known for its violence in people fighting for purchases didn’t even exist in the UK. Black Friday is a US shopping tradition exported across the Atlantic by companies such as Amazon and Asda.  Until 2010, the closest UK shoppers got to Black Friday was TV news coverage of the queues at shops across the US.

Black Friday is named as some claim it relates to the fact it is the day when retailers turn a profit for the year and move into the black, while others claim it relates to the markdowns on shop prices. Until 2010, the closest UK shoppers got to Black Friday was TV news coverage of the queues at shops across the US. Visa Europe predicts that shoppers will spend £6,000 per second on the day.  Most retailers are now stretching it into the following week, at least until Cyber Monday. That’s the day after the Black Friday weekend when shoppers are supposed to go crazy online.