At minute 7:15, in the diagram, you say that profit is q*(p*-W), however wages arent the only costs for the firm right? Or if this is the lab market, if the firm setting wage at price p*, above W, for that balance of employment rent to maximise profit?
On core-econ they give the PS curve as W/P = λ−λμ, but in my lectures we were told it was W/P = λ/(1+u), is there a reason why there is such a difference in the equations? I can't seem to find an answer online, thanks in advance :)
Hi Ben. The real wage, W/P should be increasing in the level of productivity, λ, and decreasing in the unemployment rate, u. Both of these equations have that behavior, just with different shapes. They both tend to be relatively easy to use which is why they are the two you will often see. But remember, they are just models. They aren't based on reality. That is, economists didn't look at the data and decide one form of the equation was better than the other, mainly because this type of data is too messy.
This is a great video, thank you. 1 question however, if there was a fall in productivity does real wage decrease because of a drop in nominal wages or a rise in price level??
A drop in productivity is a drop in lambda. The markup (the distance between lambda and the price-setting curve) presumably doesn't change as it's based on the competitive environment faced by the firm. So, as you note, the real wage goes down. Whether or not this is due to a fall in the nominal wage or an increase in the price level really depends on how "sticky" nominal wages are. If they are sticky, then we can think of a fall in productivity as similar to an increase in input prices. This would lead to an increase in output prices and a fall in the real wage. If wages are flexible, then the nominal wages would fall and output prices can remain the same. Unfortunately, this model is not sophisticated enough to tell us which we're going to get. In the real world, of course, we don't really see too many drops in worker productivity. We tend not to forget how to make things. Anything that looks like a fall in productivity (as opposed to productivity growth) is likely masking something else in the data no matter what the RBC people tell you.
@@liammalloy Brilliant thank you, am having to write a report on how the loss of school days due to covid effects productivity and, it turn, employment and the price level
@@liammalloy If we were to describe nominal wages falling, how would this tie into the model? Because the model shows if real wage falls, then unemployment is higher also. But if firms decided to reduce nominal wages then they would keep the same amount of labour. So where would the rise in unemployment come from? Or can the model not show this happening?
Hi thanks for doing this course. So is it the price setting curve the wage? And the actual market price = price (ie wage) + markup. Sorry for disturbing and thanks in advance
They are not directly related, but they both represent a similar idea. The opportunity cost of something is what you have to give up in order to get it. The slope of the indifference curve says how much of one good you are willing to trade for the other good. If someone is maximizing their utility, they will set the marginal utility of a good equal to its marginal cost.
@@liammalloy The sacrification of smaller and smaller quantities of good 1for increasing a quantity of good 2 Is known as law of diminishing marginal rate of substitution , SIR IS THIS DEFINITION IS RIGHT, REGARDING LDMRS
Thank you so much, this helped me a lot. I was struggling with this section and you just saved me from failing my first test!
Revising 2 hrs before a test- this was super helpful, thanks!
I found this 1 hour before my exam :)
YOU ARE THE BEST TEACHER I NEVER HAD.
An incredible video yet again, thank you Liam!
Thank you! My university in Spain uses the same textbook and my professors are not as good as you. I'm glad I found this channel.
casualidad para intro de micro.
@@vegandumplings intro micro UPF
@@itsismaaa1553 no me lo creo. No tendrás examen de micro hoy, no? Lol Tienes insta?
how sad it is that i found this channel one day before my exam :(
SAME
Same
you guys are gonna fail lol
@@erentunal886 That's so fucking true.
funny me2
I think this video should be in the other playlist!
Thank you
Great video. Clear, succinct explanation.
THANKS A LOT SIR
YOUR TEACHING STYLE IN TOO GOOD
LOTA OF LOVE FEOM INDIA 🇮🇳❣️
At minute 7:15, in the diagram, you say that profit is q*(p*-W), however wages arent the only costs for the firm right? Or if this is the lab market, if the firm setting wage at price p*, above W, for that balance of employment rent to maximise profit?
This is just a simplifying assumption in this model. We're ignoring other costs.
@@liammalloy Thank you sir
This might have saved me from failing my exam
Dude is legit reading from the textbook
great video!
great lecture!
On core-econ they give the PS curve as W/P = λ−λμ, but in my lectures we were told it was W/P = λ/(1+u), is there a reason why there is such a difference in the equations? I can't seem to find an answer online, thanks in advance :)
Hi Ben. The real wage, W/P should be increasing in the level of productivity, λ, and decreasing in the unemployment rate, u. Both of these equations have that behavior, just with different shapes. They both tend to be relatively easy to use which is why they are the two you will often see. But remember, they are just models. They aren't based on reality. That is, economists didn't look at the data and decide one form of the equation was better than the other, mainly because this type of data is too messy.
This is a great video, thank you. 1 question however, if there was a fall in productivity does real wage decrease because of a drop in nominal wages or a rise in price level??
A drop in productivity is a drop in lambda. The markup (the distance between lambda and the price-setting curve) presumably doesn't change as it's based on the competitive environment faced by the firm. So, as you note, the real wage goes down. Whether or not this is due to a fall in the nominal wage or an increase in the price level really depends on how "sticky" nominal wages are. If they are sticky, then we can think of a fall in productivity as similar to an increase in input prices. This would lead to an increase in output prices and a fall in the real wage. If wages are flexible, then the nominal wages would fall and output prices can remain the same. Unfortunately, this model is not sophisticated enough to tell us which we're going to get.
In the real world, of course, we don't really see too many drops in worker productivity. We tend not to forget how to make things. Anything that looks like a fall in productivity (as opposed to productivity growth) is likely masking something else in the data no matter what the RBC people tell you.
@@liammalloy Brilliant thank you, am having to write a report on how the loss of school days due to covid effects productivity and, it turn, employment and the price level
@@liammalloy If we were to describe nominal wages falling, how would this tie into the model? Because the model shows if real wage falls, then unemployment is higher also. But if firms decided to reduce nominal wages then they would keep the same amount of labour. So where would the rise in unemployment come from?
Or can the model not show this happening?
@@leocrellin7673 This model can't distinguish between the two, because it doesn't have an explicit model of inflation.
Hi thanks for doing this course. So is it the price setting curve the wage? And the actual market price = price (ie wage) + markup. Sorry for disturbing and thanks in advance
very helpfullllllllllll
very helpful
Sir is opportunity cost and indifference curve are inter linked
They are not directly related, but they both represent a similar idea. The opportunity cost of something is what you have to give up in order to get it. The slope of the indifference curve says how much of one good you are willing to trade for the other good. If someone is maximizing their utility, they will set the marginal utility of a good equal to its marginal cost.
@@liammalloy
The sacrification of smaller and smaller quantities of good 1for increasing a quantity of good 2 Is known as law of diminishing marginal rate of substitution ,
SIR IS THIS DEFINITION IS RIGHT,
REGARDING LDMRS
@@liammalloy sir can I have your what's app number
What textbook is this from?
The Economy, by CORE. It can be found free online here: www.core-econ.org/
www.core-econ.org/
hola te quiero