Author Question: Using a graph of the classical labor market, illustrate the effects of a real wage existing in the ... (Read 63 times)

futuristic · **on:** Jun 30, 2018

Using a graph of the classical labor market, illustrate the effects of a real wage existing in the market that is lower than the equilibrium real wage. What will eventually happen in this labor market if it is perfectly competitive?

What will be an ideal response?

Question 2

What kinds of economic activities are excluded from GDP? If GDP misses these things, then why do we use it?

What will be an ideal response?

poopface · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If the real wage is lower than the equilibrium real wage then the quality of labor demanded is greater than the quantity of labor supplied. In the auction for labor, the real wage being paid to labor will eventually be bid up, increasing quantity supplied and reducing quantity demanded until the market is in equilibrium.

Answer to Question 2

GDP ignores underground activities, household production, externalities such as pollution, and income distribution. Economists still use it because it is highly correlated with all other measures of the quality of life, and as such serves as a useful summary statistic.