Econ
Substitution effect
Substituting away from more expensive factors of production
Marginal product of Labour (MPL)
Extra labor output when adding 1 extra worker
Marginal Value Product of Labour (MVPL)
Extra revenue from selling the output made by 1 extra worker
Labor force
individuals in work or seeking employment
Participation rate
% of the population of working age (15-65) in the labor force
Labor Supply
How many hours to offer to work each individual
depending on real wage
Real Wage
Nominal wage / price of goods
Reservation wage
minimum wage they are willing to work
Aggregated Labor supply
higher the wage, the higher the working participation
Efficiency Wage theory
Wages above the market level raise productivity, helps retain quality workers
Trade Unions
Workers organization to affect pay and working conditions
voluntary unemployment
A worker chooses not to accept a job at the going wage rate
Involuntary unemployment
A worker who would be willing to accept a job at the going wage but cannot get an offer
Frictional unemployment
people in between jobs
Structural unemployment
Lack of skills to enter the labor market now
Keynesian unemployment
Not enough demand to provide jobs for everyone
Trade Union Power
Measures between the ability of unions to coordinate lower job acceptances
Tax wedges
wedges between the price the purchase pays and the price sellers receive
Marginal Tax rate
Fraction of the last round of income paid in tax to the government
Gini Coeficient
Area (A) / Area (A) + Area (B)
Bank reserves
money available to a bank
Clearing system
Interbank flows within and between countries
Sights Deposits
money that can be withdrawn without prior notice
Time deposits
These deposits require the depositor to give notice beforehand
Quantity theory of money
Change in price is also a change in the money supply
Velocity of circulation
Speed stock of money is passed around the economy
Transaction motive
people hold money to finance expected transactions
Precautionary motive
People money to meet unforeseen contingensies
Asset motive
People may hold money as a law-risk component of a mixed portfolio
Demand for money
Purchasing power rather than the nominal value of money to decide how much money to hold.
Expected Inflation
Cost is limited as they are able to adapt to it properly
Shoe leather cost
people hold less cash to keep more of their money value
hyperinflation
Inflation rates are very high
Flights from cash
Holding little cash, as it loses value quickly
Inflation illusion
Confusing nominal price and real price
Unexpected inflation
harder to adapt, redistribution of income
The impossible Triad
FIxed exchange rates, Perfect capital mobility, and Monetary Sovereignty cannot CO-EXIST!
Comparative Advantage
Countries specialize in producing and exporting the goods at a lower cost compared to other countries
Absolute Advantage
having the lowest production cost of a good
Opportunity Cost
The value of the best alternative you must sacrifice to do something else
Subsidies
Gov. financial support for firms to reduce cost of producing
Benefits
Protect and support industry until it's ready to compete with other countries
Risks
Gov. are bad at predicting which industries to protect and boost
Free Trade Area
no tariffs between MS
Custom Union
Common external tarriff
Single Market
Removed non-tariff barriers on MS