Unit 6.7 And Unit 6.8 Flashcards
How do employers maximise firms profit
Minimising wage
Maximising effort
What is the formula for minimize
W/e
Formula for maximising
E/w
What is an isocost line
Upward sloping straight line that joins together a set of points that have the same ratio of effort to wages e/w
What is the inverse of isocost line
Cost of effort w/e
What does a steeper isocost line represent
More effort per rand
Lower cost of effort
Higher profits for employer
What if the isocost line is flatter
Less effort per rand
Higher cost of effort
Lower profits
What is the mrs in an isocost
Trade off a person is willing to make between two goods at any point (slope)
What are efficiency wages
Where the employers choosing a wage based of the best response of workers curve
Where the employer pays higher than the reservation wage
What is involuntary unemployment
People unemployed who want a job
What is the employment rent of someone who goes job to job
Zero
What do firms lay off people
They pay high wages which can only afford a certain amount of employees which result in people getting layed off
Why are economic models useful
Used to predict how the economy reacts to exogenous shock
What is an exogenous shock
Change in some variable or parameter not modelled on our axes
What is and Endogenous shock
A change in a variable to something on the axes that results to movements along the curve
What are some examples of exogenous shock
Changes in economic policy
Public policy
These shift the entire best response curve
Two questions to ask when shifting feasible frontier
Reservation change? (Shift)
Employment rent change ? (Pivot)
Summarise changes to the best response curve
The disutility of effort negatively relates to effort
Probability of being caught not doing work which positively relates to effort
The unemployment benefit negatively relates to effort
Duration of unemployment positively related to effort
