Reducing unemployment

Government policies to reduce unemployment

Reducing occupational immobility of labour

This is often the cause of structural unemployment so the government can aim to reduce this by providing the unemployed with skills through apprentice schemes and other workplace training.

Benefit and tax reforms

Incentivising people to work by reducing benefits, reducing taxes or linking benefits schemes to programmes that promote work, such as work experience programmes.

Boosting aggregate demand

Often used during a depression, this Keynesian solution involves creating new jobs, even if not necessarily needed, so that consumers have more disposable income to inject into the circular flow.

Employment subsidies

A demand-side policy. Governments provide subsidies for firms that take on long-term unemployed people, which prevents these people from becoming discouraged workers.

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Business Growth

Why do businesses grow? Profit motive Businesses grow to make more profit by increasing revenue. Selling more to more people often means profits increase. The valuation of a company's share is often influenced by how it is expected to do in the future (ie how much profit it is likely to make). When it is projected to do well, share prices increase, and it is valued more highly on the stock market. This provides incentive for companies to increase profits, doing well on the stock market increases investment and raises more money. Cost motive - economies of scale When firms are larger, relative costs are smaller. This is because some costs are fixed, so if you are a larger company, producing larger output, the cost per unit will decrease. e.g. If a T-shirt factory's main cost is the £10,000 to rent to factory each month, and it produces only 1000 shirts a month, each shirt costs £10 to make. But if it scales up and produces 100,000 shirts a month, ...

3.4.1 Efficiency

Efficiency Allocative efficiency Output at which the marginal utility, or benefit, of a good to a consumer is the same as equal to the marginal cost of producing it. This is seen on demand/supply curves, where D = S, output is produced as demand = marginal utility and supply = the sum of firms' marginal costs in an industry. On an individual scale, it is where: AR = MC Output is where the demand curve cuts the MC curve. NB: technically occurs where MSB = MSC (if you consider externalities) Occurs in perfect competition. Eval - PC markets achieve allocative efficiency where there are no externalities. LR equilibrium is where P = MPC, so if MSC > MPC, then there is an allocative inefficiency which leads to overproduction and consumption. Productive efficiency Output at which a good is produced at the lowest possible average cost for a firm. This oc...

3.3.4 Normal profits, supernormal profits and losses

Normal profits, supernormal profits and losses Profit maximisation Occurs at: MC = MR where MC cuts MR from below (as where it cuts from above is point of profit minimisation) This is because past this point MR < MC , and each additional good is costing the firm more than it is making. Before that point MR > MC so the firm can increase profit by producing more. NB - point of prof max can be found using TC and TR: Normal and supernormal profit and losses Normal profit is profit that covers the opportunity cost of capital and is just sufficient to keep the firm in the market. Supernormal/economic profit are profits that exceed normal profits. When AC lies below AR at the point of output, the difference between AR and AC is the supernormal profit on that unit output. The overall supernormal profit is the difference times the quantity sold (Q2 in the above)....

Edexcel AS/A Level Economics revision

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