Macroeconomics and Market Structures: Unemployment, Elasticity, Competition

Essential Macroeconomics and Market Terms

Types of Unemployment and Labor Concepts

• Cyclical - fired because of economic cycles (laid off during downturns).
• Structural / Seasonal - structural: changes in the economy that make skills obsolete; seasonal: employment that changes by season.
• Frictional - moving from one job to another.
• Discouraged - people who give up looking for a job.
• Marginally - when you have a good job.

Current Economic Condition and Policy Options

It is a contractionary economy because of lower GDP and inflation, and unemployment is on the rise. Fiscally, we can decrease taxes and raise government spending. The Federal Reserve should buy bonds in open market operations (putting money into circulation).

Tax Systems

• Proportional - everybody pays the same rate.
• Progressive - the people who make more money pay a higher tax rate.

Elasticity

• Elasticity of supply - how sensitive suppliers are to price changes. (If you buy a painting, you usually cannot change supply quickly because it is unique.)
• Elasticity of demand - how sensitive consumers are to price changes. (If hamburger prices rise, consumers might switch to tacos.)

Market Structures

• Perfect competition - a market where conditions are met: low barriers to entry, low control over prices, low variety of goods, and a large number of firms.
• Monopoly - when one producer dominates the market.
• Monopolistic competition - low barriers to entry, large variety of products, many producers, and some control over prices.
• Oligopoly - a market system where a few large producers dominate the market, such as banks and airlines.
• Natural monopoly - a monopoly that functions more efficiently when there is only one producer. Examples: water, oil, FPL.

Market Behavior and Non-Price Competition

Price fixing - oligopoly firms may collude and fix the prices of their goods to keep profits high (this is addressed by antitrust laws).

Name four kinds of non-price competition: service, advertising, location, and physical appearance.

Patents and Customers

Explain the rights that a patent gives a company - the right to produce a product for a certain amount of time.

Firms divide customers - because if you don't divide them into groups, the demographics won't pay for those groups.

Important Economists and Concepts

• Adam Smith - often called the father of economics; associated with the free market and capitalism.
• Karl Marx - associated with command-economy ideas and critiques of capitalism.
• John Maynard Keynes - associated with a mixed market system and government intervention.
• Scarcity - everything is limited.
• PPC - we use the Production Possibility Curve (PPC) to measure the production possibility of two goods in an economy.