Principles of Economics Final

labor unions

formed to increase their member’s wages and to improve working conditions

• negotiate with firms on behalf of their members

• if unions are successful in obtaining higher wages in the union sector wages will rise and employment will fall

• provide barrier to entry - need certain credentials

collective bargaining

negotiations between representatives of employers and unions

unemployment rate

percentage of the population aged 16 and older who are willing and able to work but are unable to obtain a job

• college students NOT part of labor force

gross domestic product (GDP)

total value of all final goods and services produced in a given period of time, such as a year or a quarter

• value: market prices at which goods and service sell

• final good or service: ready for its designated ultimate use

value of total production and income

• expenditures must equal income

measures the standard of living

discouraged workers

people leaving the labor force because they could not a job

• people not actively seeking work for four weeks

four categories of unenployed

job losers: those who have been temporarily laid off or fired

job leavers: those who have quit their jobs involuntarily

reentrants: those who worked before and are reentering the labor force

new entrants: those entering the labor force for the first time

minimum wage

• set above the equilibrium wage

• set by the government for the unskilled workers

surplus in the labor market

under employment

occurs when a person works a job that doesn’t fully utilize their skills, experience, or education

• idle worker

structural unemployment

caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers

• brought about by tech advances that make the job skills of worker obsolete

• AI takes jobs

cyclical unemployment

rises and falls along with the business cycle

• rises when economy goes down the shitter

frictional unemployment

caused by people moving from one job to another

• people quitting to seek better opportunities or benefits

determinants of long-run economic growth

natural resources

technological advancements

innovation

technological change

• increase in tech leads to increase in economic growth

infrastructure

highways, ports, bridges, power lines, airports, and information technology

• critical to economic coordination and activity

• poor infrastructure is a major deterrent to economic growth

investing leads to economic growth

shifts in demand curve

consumption will increase if:

• consumer confidence increases

• wealth increases

• tax cuts

• population increase

• saving decrease

investment will increase if:

• business confidence increases

• real interest rates fall

• business taxes reduce

progressive tax

federal income taxes designed so that those with higher incomes pay a greater proportion of their income in taxes

• used by government to redistribute income

regressive tax

payroll taxes that, as a person’s income rises, the amount of his or her tax of proportion of income falls

• social security imposed as fixed proportion of wage and salary income

• takes a larger percentage from low-income taxpayers

Examples includes:

• payroll tax

• user fees

• tariffs

(if you don’t make a lot of money, you’re cooked)

excise tax

sales tax on specific products, such as alcohol, tobacco, and gasoline

• most regressive

• calculated as a percentage of income

  • imposes greater burden on the poor and middle classes than wealthy

• leads to economic inefficiencies

flat tax

charges all income earners the same percentage of their income

• proportional tax

• advantages:

  • no traditional exemptions

  • no abuses and misrepresentations with tax deductions

• disadvantages

  • excludes charitable contributions

  • discourages home ownership

  • not progressive enough

    • eliminate the inequities in income

consumption tax

tax the amount that is spent rather than what is earned

• saved income is not taxed

  • increases investment funds

  • increases worker productivity

  • increases economic output

  • increases real wages

tariff

tax on imported goods

• effects:

  • smaller total quantity sold

  • higher price for domestic customers

  • more sales at higher prices for domestic producers

  • lower foreign sales

  • gains to producers are most offset by the losses to consumers

  • decrease in exports —> unemployment in export industries

liquidity and liquid assets

ease with which one asset can be converted into another asset or into goods and services

liquid assets - can be quickly converted into cash while keeping their value

disposable income

income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes

comparative advantage

the idea that a person, business, or country can produce a good or service at a lower cost than another

balance of trade

the difference in value between a country’s imports and exports

export - import = balance of trade

why are unemployment stats misleading?

part time jobs count as employment

what is official unemployment?

when you are fired/laid off but actively seeking a job

are college students in the labor force?

no

can increasing technology increase economic growth?

yes

what is a government policy that does NOT encourage economic growth?

high tax on companies

can you see economic growth if you invest in infrastruture?

yes

what happens to investment if taxes and interest rates decrease?

it goes up

what trade is ideal?

export more than you import

what do tariffs do to domestic unemployment

reduce it

the greater the difference in opportunity cost between two nations…

the greater the benefits from specialization and exchange

what do tariffs do in terms of exportation?

decrease in exports