Download Chapters 11-12-14

ECO 1003
Handouts for
Chapters 11-12-14
Chapter 11
(Why) Are Women Paid Less?
Unemployment
• During economic downturns or recessions,
industrial plants run at less than their total
capacity. When there is unemployment of labor
and capital, we are not producing all that we can.
Chapter 11
(Why) Are Women Paid Less?
DEFINING AND MEASURING UNEMPLOYMENT
• employed Any person 16 years old or older (1)
who works for pay, either for someone else or in
his or her own business for 1 or more hours per
week; (2) who works without pay for 15 or more
hours per week in a family enterprise; or (3) who
has a job but has been temporarily absent, with
or without pay
Chapter 11
(Why) Are Women Paid Less?
• unemployed A person 16 years old or older who
is not working, is available for work, and has
made specific efforts to find work during the
previous 4 weeks
• not in the labor force A person who is not
looking for work, because he or she either does
not want a job or has given up looking
Chapter 11
(Why) Are Women Paid Less?
• labor force The number of people employed
plus the number of unemployed
• labor force = employed + unemployed
• population = labor force + not in labor force
6
Chapter 11
(Why) Are Women Paid Less?
• unemployment rate The ratio of the number of people
unemployed to the total number of people in the labor
force
unemployment rate =
unemployed
employed + unemployed
• labor force participation rate The ratio of the labor
force to the total population 16 years old or older
labor force
labor force participation rate 
total population
Chapter 11
(Why) Are Women Paid Less?
THE COSTS OF UNEMPLOYMENT
Some Unemployment Is Inevitable
• When we consider the various costs of
unemployment, it is useful to categorize
unemployment into three types:
• Frictional unemployment
• Structural unemployment
• Cyclical unemployment
Chapter 11
(Why) Are Women Paid Less?
Frictional and Structural Unemployment
• frictional unemployment The portion of
unemployment that is due to the normal working
of the labor market; used to denote short-run
job/skill matching problems
• structural unemployment The portion of
unemployment that is due to changes in the
structure of the economy that result in a
significant loss of jobs in certain industries
Chapter 11
(Why) Are Women Paid Less?
• natural rate of unemployment The
unemployment that occurs as a normal part of the
functioning of the economy
• Sometimes taken as the sum of frictional
unemployment and structural unemployment
• cyclical unemployment The increase in
unemployment that occurs during recessions and
depressions
Chapter 12
The Effects of the Minimum Wage
Chapter 12
The Effects of the Minimum Wage
• The schedules D and S show the demand and supply
of labor.
• In the absence of a minimum wage, equilibrium is at
Point B, with wage rate We and employment level Le.
• Imposing a minimum wage of Wm causes quantity
supplied to rise to Ls, and reduces quantity
demanded to Ld.
• Thus, an excess supply of labor, equal to Ls - Ld,
develops.
• This excess supply of labor creates new incentives
on both sides of the market.
Chapter 12
The Effects of the Minimum Wage
• A number of workers (Le - Ld) who previously had
jobs will lose them, while some individuals (Ls Le) who were unwilling to work at a wage of We
will be glad to offer themselves to employers at a
wage of Wm.
• Individuals from both categories are willing to
work for less than Wm, and thus will be willing to
devote time, unemployed, looking for a job at the
above-equilibrium wage shown by Wm.
• Thus, one consequence of the minimum wage is
to raise the unemployment rate among lessskilled workers.
Chapter 12
The Effects of the Minimum Wage
• Overall, because the minimum wage causes a
decline in employment, it also causes an
efficiency loss for the economy.
• The magnitude of this efficiency loss is shown by
the area ABC in Figure 12-1.
Chapter 14
The Underground World
Üretken Enterprise has developed a new product called C’mon. The market
demand and supply for this product is given as Q = 240 - 4P and Q=40+P,
respectively.
a) What is the equilibrium price and quantity for this product?
b) If the government imposed per unit tax of 10 TL per C’mon manufactured,
what would be the new equilibrium price of C’mon? Would a per unit tax on
C’mon change the revenue received by Üretken Enterprise?
Solution:
a) Q = 240 - 4P and Q=40+P equilibrium price and quantity
240 - 4P=40+P P=40 Q=80
b) The tax represents a price increase to the purchaser regardless of the
current price. Thus, the supply curve will be adjusted vertically upward by 10
Q=40+P P= Q-40
New P=q-40+10 P=Q-30 Q=P+30
Equilibrium price P+30=240-4P
P=22 Q=52
As quantity sold has fallen too, revenues would fall
Chapter 14
The Underground World
The Impact of a Tax
• The government wants to impose a $1.00 tax on
movies. It can do it two ways:
• Make the producers pay $1.00 for each movie
ticket they sell
• Make consumers pay $1.00 when they buy
each movie
• In which option are consumers paying more?
Chapter 14
The Underground World
• The burden of a tax (or the benefit of a subsidy)
falls partly on the consumer and partly on the
producer
• How the burden is split between the parties
depends on the relative elasticities of demand
and supply
Chapter 14
The Underground World
The Effects of a Specific Tax
• For simplicity we will consider a specific tax on a
good
• Tax of a particular amount per unit sold
• Federal and state taxes on gas and cigarettes
• For our example, consider a specific tax of $t per
unit sold
Chapter 14
The Underground World
Price
S
Pb price
buyers pay
Tax =
$1.00
•Buyers lose A + B
A
B
P0
PS price
producers
get
•Sellers lose D + C
•Government gains A +
D in tax revenue.
C
D
•The deadweight
loss is B + C.
D
Q1
Q0
Quantity
Chapter 14
The Underground World
Incidence of a Specific Tax
•
Four conditions that must be satisfied after the tax is in
place:
1. Quantity sold and buyer’s price, Pb, must be on the
demand curve
• Buyers only concerned with what they must pay
2. Quantity sold and seller’s price, PS, must be on the
supply curve
• Sellers only concerned with what they receive
Chapter 14
The Underground World
•
Four conditions that must be satisfied after the
tax is in place (cont.):
3. QD = QS
4. Difference between what consumers pay
and what buyers receive is the tax
• If we know the demand and supply curves as
well as the tax, we can solve for PB, PS, QD and
QS
Chapter 14
The Underground World
• In the previous example, the tax was shared
almost equally by consumers and producers
• If demand is relatively inelastic, however, burden
of tax will fall mostly on buyers
• Cigarettes
• If supply is relatively inelastic, the burden of tax
will fall mostly on sellers
Chapter 14
The Underground World
Burden on Buyer
Burden on Seller
D
Price
Price
S
Pb
S
t
Pb
P0
P0
PS
t
D
PS
Q1 Q0
Quantity
Q1 Q 0
Quantity