Author Question: What is meant by full employment? Why isn't the full employment rate zero? What causes frictional ... (Read 220 times)

@Brianna17 · **on:** Jun 29, 2018

What is meant by full employment? Why isn't the full employment rate zero? What causes frictional unemployment?

What will be an ideal response?

Question 2

Explain why public goods can be classified as market failure? Explain what problem arises when public goods are produced?

What will be an ideal response?

fatboyy09 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Full employment is the level of unemployment that corresponds to normal friction in the labor market. Since a dynamic economy will always experience changes in demand for goods and services, there will always be some frictional unemployment. Frictional unemployment refers to the unemployment resulting from the time people spend between jobs, looking for other work.

Answer to Question 2

When the market fails to provide certain goods and services, there is a clear case for government intervention. If left to the free market mechanism, no public goods would be provided and, as a result, there would be a clear market failure. Public goods can be used by one person without reducing availability of the good for consumption by others (non-rival) at no additional cost and once the good is produced, it is usually impossible, or at the very least difficult, to exclude anyone from consuming it (non-excludable). Due to these results, consumers can take advantage of public goods without contributing sufficiently to their creation. This is called the free rider problem.