Powerlessness of the Unemployed in the WS-PS Equilibrium
In the wage-setting and price-setting model, the equilibrium is a Nash equilibrium. This means that while involuntarily unemployed individuals wish for a different outcome, they lack the power to bring about change. Other economic actors, such as firms, customers, and employed workers, could alter the situation but have no incentive to do so, as the current equilibrium represents the best outcome for them given the actions of others.
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Introduction to Macroeconomics Course
Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Graphical Representation of Involuntary Unemployment at Equilibrium
In an economic model, a stable situation is reached where the real wage that firms set to maximize their profits is exactly equal to the real wage required to motivate employees to work effectively. Despite this stability, a number of individuals who are seeking work remain unemployed. Which statement best explains why this unemployment is considered 'involuntary' within the logic of this model?
In the wage-setting/price-setting model, the unemployment that exists at the equilibrium point is a result of unemployed individuals demanding a wage higher than the one firms are offering.
Analyzing an Individual's Unemployment Status
Nature of Equilibrium Unemployment
Powerlessness of the Unemployed in the WS-PS Equilibrium
Confirmation of Involuntary Unemployment in the WS-PS Diagram
Powerlessness of the Unemployed in the WS-PS Equilibrium
The Stability of Labor Market Equilibrium
Equilibrium Point A in Figure 2.8: Structural Unemployment at the Nash Equilibrium
Equilibrium Point E in Figure 2.10: The Initial Nash Equilibrium
Two competing coffee shops, 'Bean Haven' and 'Daily Grind', are the only sellers in a small town. Each must decide whether to set a high price or a low price for their coffee. The daily profits for each shop depend on the combination of prices they choose, as shown in the table below (profits are listed as [Bean Haven, Daily Grind]):
Daily Grind: High Price Daily Grind: Low Price Bean Haven: High Price [$1000, $1000] [$400, $1200] Bean Haven: Low Price [$1200, $400] [$700, $700] Given this information, which outcome represents a stable state where neither shop has an incentive to change its pricing strategy on its own?
Farmers' Planting Dilemma
True or False: In a scenario where two competing firms are deciding whether to advertise, the outcome where both firms choose to advertise is always a Nash equilibrium, because if one firm were to stop advertising on its own, it would lose market share to the competitor who is still advertising.
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Labor Market Equilibrium Scenario
In an economy at its wage-setting/price-setting equilibrium, an unemployed individual, who is identical in skill to currently employed workers, approaches a firm and offers to do the same job for a slightly lower wage. According to the model, why is the firm most likely to reject this offer?
The Stability of Labor Market Equilibrium
In the wage-setting/price-setting model of the labor market, a profit-maximizing firm will always hire an unemployed worker who offers to work for less than the prevailing equilibrium wage, as this directly lowers the firm's labor costs.