Figure 2.8: Detailed Description of Initial Equilibrium in the WS-PS Model and Corresponding Lorenz Curve
Figure 2.8 illustrates an economy's initial equilibrium through two diagrams. The first diagram, representing the labor market, shows the wage-setting (WS) and price-setting (PS) curves. The labor supply is fixed at 90, while the PS curve is a horizontal line at a real wage of 0.6位, indicating that 60% of the average product of labor (位) goes to wages. The WS curve intersects the PS curve at equilibrium point A, corresponding to an employment level of 80. The second diagram presents the corresponding Lorenz curve for income distribution. It plots the cumulative share of population against the cumulative share of income, showing the distribution among the unemployed (10% of the population), the employed (80% of the population), and the firm owners (10% of the population). The Gini coefficient for this distribution is 0.36.
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Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
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Definition of Equilibrium in the WS-PS Model
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Consider a simplified economy where the total daily output produced by each worker is divided between the worker's real wage and the firm's profit share. The firm's ability to claim a larger profit share is determined by the degree of competition it faces in its market. If the government introduces policies that significantly decrease the level of competition among firms, what is the most likely outcome for the distribution of output?
Impact of Market Competition on Income Distribution
Market Competition and Wage Determination
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In an economy, the output produced by a worker is divided between the worker's real wage and the firm's profit share. The size of the firm's profit share is determined by the level of competition in the market. Match each economic event to its most direct consequence within this framework.
Analyzing the Impact of Competition Policy
In a hypothetical economy with 80 employees, each worker produces a daily output of 100 units. The firms in this economy retain a constant 25% fraction of the output as their profit share, a level determined by the degree of market competition. The remaining portion of the output is distributed to the workers as wages. The total daily real wage income received by all workers combined is ____ units.
A government introduces new regulations that significantly increase the level of competition among firms in an economy. In this economy, the output of each worker is divided between the worker's wage and the firm's profit share. Arrange the following events in the logical sequence that would result from this policy change.
In an economic model, the total output produced by workers is divided between their wages and the firms' profit share. The size of this profit share is determined by the degree of competition firms face in their market. A government's stated goal is to increase the proportion of total output that is paid to workers as wages. Which of the following policy actions would be the most direct and effective way to achieve this specific goal, according to the logic of this model?
Figure 2.8: Detailed Description of Initial Equilibrium in the WS-PS Model and Corresponding Lorenz Curve