Econ Notes

People who are unable to work due to disability are not included as part of the labor force and, therefore, are not considered unemployed. Others who are not included in the labor force are household workers, students, discouraged workers, and retirees Demand curves are not observable so a monopolist must search for the profit maximizing price. Because demand information is not perfect, a monopolist is a price searcher. The other statements are false. Although a monopolist can earn positive economic profits in the long run, they are not guaranteed profit. If average total costs exceed price, the monopolist will lose money. A monopolist maximizes profit where marginal revenue equals marginal cost. A monopoly may be defined as a single seller of a well-defined product for which there are no good substitutes. From an initial equilibrium, an increase in real money balances will leave households and businesses with more money than they wish to hold, so they will purchase interest-bearing securities, driving their prices up and yields down until a new equilibrium short-term rate is established The effect of an increased wage on the amount of labor an individual will supply will depend on the relative strength of the income and substitution effects. The substitution effect leads to an increase in labor supplied as less leisure is consumed because its opportunity cost is increased. The income effect leads to less labor supplied as the wage increase and resulting higher income leads to greater consumption of leisure (less hours of labor supplied). For example, with a wage increase to $1,000 per hour, some workers will choose to reduce the number of hours they work, rather than increase them. An increase in production costs will decrease industry supply and the supply curve will shift to the left (less quantity supplied at each price). Assuming a downward sloping industry demand curve and no other change in the costs of production, the increase in per-unit cost will decrease producers’ surplus in the plastic plant industry.