Eco 1011 - Unit 9 notes

Unit 9 Notes

Context for Unit:
 Price-setting firms produce differentiated products:
o Assumed that firms have power and are able to set their own prices for their
products
 The principal-agent model can explain the conflict of interest between the
employer and the employee over worker’s effort, and why contracts are not
enough to resolve this:
o in a labour market, deliverables are not always clear and are not always
defined
 In the labour market, real wages and the unemployment rate are key outcomes
o How do we increase wages and/or reduce unemployment?


What is the relationship between real wages and the price
level in a particular market?:




 Positive direct relationship between real wage and price of product
 Increase in price of product results in increase in real wage of workers
 Increase in real wages result in ability to increase price of product

What is the relationship between real wages and the
unemployment rate?:

,  Inverse relationship between real wages and unemployment rate
Measuring of Key Variables:

Who are the Unemployed?:
People who are:
o Not in paid employment or self-employment:
 Including the informal and formal sectors
o Available for work:
 Excluding students and homemakers
o Actively seeking work




Labour Market Statistics:




 Countries with the same unemployment rate can have a different employment rate
o Different Denominators