Free

The Substitution Effect and a Decrease in Employment - Speech or Presentation Example

Comments (0) Cite this document
Summary
This presentation explores the substitution effect that will first lead to a decrease in employment. This is because the units of labour required are less. From 6 to 4. The capital stock will increase. This is because the cost of labour per unit reduced from 4 to 2…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.4% of users find it useful
The Substitution Effect and a Decrease in Employment
Read TextPreview

Extract of sample "The Substitution Effect and a Decrease in Employment"

In the long run, a decrease in the price of capital will lead to an increase in labour units. This is because the proportions have a substitution effect. The total effect will be less capital and more labour employment. According to the substitution effect, I would expect a company to have a high own wage elasticity of demand if the other factors of production such as capital can easily be used as substitutes for labour. This would make it easy for labour to be reduced or increased depending on its substitute’s quantities. If the product being produced in the industry has high price elasticity, then it means that the labour elasticity of demand will also be high. If an industry is producing coffee and the elasticity of demand for coffee keeps changing, then the own wage labour rate will also change relative to the elasticity of demand for the product. When all the other factors of production have a high elasticity of demand, then it also means that the labour elasticity of demand will be high thus elastic. If a company’s capital demand keeps changing for example, then it means even labour demand will change as the two are co-related. A company will only be able to hire what it can pay for thus the elasticity. If the total cost of production of a company is highly contributed by labour, then the labour elasticity of demand will tend to be highly elastic. This is a scale effect that means that the more labour in the industry contributes highly to more total costs in production, the more the company is likely to demand labour. If the product cost is low for example and the company requires to spend less on production, they will cut on labour because it has the bigger percentage hence the elasticity. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Write problem set Speech or Presentation Example | Topics and Well Written Essays - 500 words”, n.d.)
Write problem set Speech or Presentation Example | Topics and Well Written Essays - 500 words. Retrieved from https://studentshare.org/macro-microeconomics/1678552-write-problem-set
(Write Problem Set Speech or Presentation Example | Topics and Well Written Essays - 500 Words)
Write Problem Set Speech or Presentation Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/macro-microeconomics/1678552-write-problem-set.
“Write Problem Set Speech or Presentation Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/macro-microeconomics/1678552-write-problem-set.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF The Substitution Effect and a Decrease in Employment

Employment

...the organization as a whole as it helps the company to be more effective. It is not only required by law but also for the successful running of a company. A diverse workforce will be helpful as they can come up with new and effective ideas for the company. It can become a strength of the entire organization. The managers can make a better use of employee talent. Employees with a diverse background can come up with creative ideas for problem solving and they might also be able to understand the marketplace better. 40. A number of regulations have been passed to protect the employees belonging to diversified groups. One of these is the equal employment opportunity commission which...
14 Pages(3500 words)Essay

Decrease childhood obesity

...? Decrease childhood obesity Institute of affiliate Introduction According to the study done by Mayo clinic in US, it is evident that one of the serious medical conditions affecting adolescent and children is childhood obesity (Metcalf, & Metcalf, 2008.). Childhood obesity is a weight condition that surpasses the normal weigh of a child corresponding to his or her height and age. It is troubling for a child to have extra weight since it can be a source of healthy problems. Some of the noted problems are high blood pressure, high cholesterol and diabetes, which were once confined as health problems for the adults. Unfortunately, the study has it that child obesity can lead to depression and poor self-esteem. Statistically,...
12 Pages(3000 words)Research Paper

RBA Decrease Rates for Christmas

...and able to work but cannot find employment opportunities. There are different types of unemployment, but whatever the case, unemployment is a critical factor in the economy. A closely related factor in the economy is inflation. Inflation denotes an increase in the general price level in the economy. The relationship between the two are crucial to consider in the explanation and analysis of the article dealt with in this paper. An inverse relation is said to characterize unemployment and inflation6. An increase in one of the two result to a decrease in the other and vice versa. This relationship is depicted by the use of a Phillip’s curve: Today’s macroeconomic trends are characterized by both inflation...
7 Pages(1750 words)Essay

Substitution and Income Effects

...Substitution and Income Effects Paper Introduction The aspect of income effect is often described as the increase in overall spending that is made feasible through price cut or decrease in the overall spending followed by increase in the price. The substitution effect is fundamentally described as a transformation in relative consumption that occurs because the consumers make the alternative execution of cheaper products in place of costly products (Hirschey, 2008). In other words, it can be stated that the conception of income effect denotes the transformation in consumption types due to the alteration in purchasing...
5 Pages(1250 words)Essay

Substitution and Income Effects

...be regarded as a consequential effect to the fact that the fixed budget is less flexible than the prices changes of the commodities which, in turn, tend to determine the consumption capacity of that particular individual or household. In this context, though the budget of the consumer does not alter, the increase on the prices tends to present a circumstance as if the individual has lowered his/her budget with similar consequences to a decrease in the income of the individual. Therefore, the individual responds according to the fluctuation in the purchasing power which is termed as the income effect (Samuelson, 1980). This particular relationship between the budget,...
5 Pages(1250 words)Research Paper

Substitution and Income Effects

.... An increase in the price of gasoline causes my budget line for fuel to shift from B1 to B2. Suppose that my auto could run on both gasoline (X) and ethanol (Y). So I change my fuel consumption from the bundle of gasoline and ethanol represented by A to the bundle of gasoline and ethanol represented by B. This shift from A to B is indicative of the total effect of the change in the price of gasoline. This fall in the amount purchased of gasoline from X1 to X2 occurs owing to two reasons. First it is the substitution effect because gasoline is now costlier than ethanol. Second it’s the income effect because my real budget for purchasing fuel has also...
4 Pages(1000 words)Essay

Substitution and income effects

...? Substitution and income effects Grade (25th, Oct. Substitution and income effects Whenever, the price of acommodity utilized by a consumer changes, other subsequent changes occur. These changes affect the income of the consumer and his/her ability to purchase other commodities (McEachern, 2012). Thus, the change in the price of one commodity triggers a change in the income available for the consumer to utilize in purchasing other commodities that satisfy his/her need. This being the case, it is vital for the consumer to apply other alternatives, which could include using substitute products or reducing the budget for the other commodities. Therefore, an...
4 Pages(1000 words)Assignment

Income and Substitution Effects

...is called income effect. An increase in price makes an individual poor than before since it makes one buy less even without decrease in income. However, any reduction in price would make a consumer feel richer than before hence prompting the buyer to purchase more of particular product. Also, an individual may be forced to buy a particular product because the substitute for the good is more expensive due to an increase in price. Hyman (2010, p. 153) argues that any individual’s decision to change purchase decision prompted by fluctuations in relative price is known as substitution effect. Income effect is always...
3 Pages(750 words)Essay

Substitution Industrialization

...THE IMPACT OF SUBSTITUTION INDUSTRIALIZATION IN THE LONG TERM DEVELOPMENT OF BRAZIL By Introduction The essay explores the effects of import substitution industrialization (ISI) on the development of Brazil. The events like the Great Depression and the Second World War affected the supply of imported goods to the country and as a result Brazilians were forced to produce the products themselves on their own land. This necessity led to industrialization or what is known as import substitution industrialization. ISI led to the development of industrial base in the country. ISI allowed the local supply of consumer goods, difficult to be imported at extremely high rates...
6 Pages(1500 words)Essay

Relative Rates of Nucleophilic Substitution Reactions

...Relative Rates of Nucleophilic Substitution Reactions Chemistry Lab Report 17 November Nucleophilic substitution reactions are type of reactions that involves step-by-step substitution of one nucleophile by another. This experiment is aimed at determining the effects of the structure of the alkyl halides on the rate of SN1 and SN2 reactions. It also sought to find the effects of the nature of the leaving group, the size of the nucleophile as well as the polarity of the solvent on the rate of SN1 and SN2 reactions. Primary, secondary and tertiary alkyl bromides were reacted with NaI in presence of acetone and ethanol solvents to determine their...
2 Pages(500 words)Lab Report
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Speech or Presentation on topic The Substitution Effect and a Decrease in Employment for FREE!

Contact Us