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Econ 101 of the Day, 10/09/2013

October 9th, 2013 · 2 Comments
Econ 101 of the Day

Here is today’s article- now we’re starting to look behind the supply curve in order to understand how firms decide how much to produce:

Monday through Thursday, I will post an Econ 101 article (or two) for you to peruse. On Fridays, I will post some practice problems that relate back to the week’s material so that you can play with them over the weekend. If you get behind, you can see all of the articles one at a time via the Econ 101 of the Day category archive, or you can look at the overall list of articles here or directly on About.com. You can also check out the Economics Classroom page for lots of useful stuff.

Stay tuned for more tomorrow!

Tags: Econ 101 of the Day

2 responses so far ↓

  • 1 Jeff // Oct 10, 2013 at 1:35 am

    Note that capital is typically expressed in dollars while labor is typically expressed in man-hours. To convert and make an apples-to-apples comparison you need to make a conversion, which would usually be done by converting labor to dollars.

    This conversion to dollars is heavily dependent on both region and policy so any application of this concept would likely to be region and policy-specific (just like the effect of capital would be technology specific, but that’s another story…).

    Ironically, this translation provides for an interesting possible inversion of the expected political roles. Looking at a grocery store, if there is a high minimum wage, then the store has a large incentive to find creative ways to operate using less physical labor, so it is theoretically possible for a conservative to argue for a minimum wage when looking at long term effects on the grounds that it increases efficiency. Similarly, it is also theoretically possible for a liberal to argue against the minimum wage because removing it could in some circumstances boost aggregate demand by decreasing unemployment, which would overall increase bargaining leverage and by turning some non-earners into earners.

    Of course the traditional arguments are well known. I think that areas of economics where either side could reasonably argue on either side of the issue are interesting because they show that the second look often reveals what you missed in the first.

  • 2 econgirl // Oct 10, 2013 at 2:13 am

    Actually, the fact that the production function takes dollars out of the picture is kind of the point. We’ll add in the dollars eventually when we talk about the costs of production, but it’s helpful to be able to think at both of these levels separately.

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