Help wanted

In IB Economics we teach that there are two major types of unemployment an economy may experience:

  • Equilibrium unemployment
  • Disequilibrium unemployment

These could be further broken down in several types, ranked roughly in order from the least undesirable to the most undesirable (from a macroeconomic perspective):

Equilibrium unemployment consists of:

  • Frictional unemployment: This accounts for people who are “in between jobs” or fresh out of college looking for their first jobs.
  • Structural unemployment: This is caused by the changing structure of an economy. As America’s manufacturing sector shrinks and its education and health care sectors grown, those whose skills lie in manufacturing become structurally unemployed.
  • Seasonal unemployment: caused by changes in the seasons and the demand for seasonal workers in some industries such as agriculture and tourism.

Disequilibrium unemployment consists of:

  • Cyclical unemployment: also called ‘demand-deficient unemployment because it is caused by a fall in aggregate demand or overall spending in the economy.


In view of economic theory of unemployment, listen to the podcast ‘Help Wanted’ from Business Week magazine. If you have difficulty accessing the podcast, a transcript of the report is linked: Transcript – Help Wanted.

Discussion questions: 

    • In what way may structural unemployment be a sign of a healthy economy, rather than a sick one?
    • Part of the 2009 US fiscal stimulus package included increased benefits for unemployed Americans. How may this pose an obstacle to reducing unemployment in America?
    • Historically, the natural rate of unemployment in most European economies has been higher than that of the United States. Why is this?

Alcohol, tourism and other problems

Help, the tourists are coming!

In the article linked above some major problems of tourism are pointed out for the people living in the German capital Berlin.

This linked article from The Economics : Rum, rum everywhere also discusses the possible consequences of alcohol consumption.

You may be wondering how these issues relate to our study of economics? It is actually all about market failure. Tourism, overconsumption of alcohol create spillover costs for societies. People’s quality of life is disturbed by the hordes of tourists drinking and partying all night not only in Germany but also in many other countries.

And there is no easy solution to those problems as tourism creates a living for many businesses such as hotels, restaurants, bars and shops, to mention just a few.

Discussion questions:

  • Is overconsumption of alcohol a market failure? If so, what type could it be classified as?
  • If the tourist nations were serious about cracking down on drunk tourists and other issues, what economic actions could they take in the tourist communities where most of the trouble occurs?
  • How are proprietors of bars and clubs in resort communities benefiting at the expense of taxpayers from other parts of the tourist nations?
  • Does the private cost of running a bar in a place like Malta, Greece reflect the social cost? Explain.


Stimulus package and ‘crowding out’

Listen to the audio: Crowding out and the US stimulus package

Link to Blogosphere reading: Blogosphere reading

Discussion questions:

  • In evaluating the use of expansionary fiscal policy, we learn in IB Economics that the crowding-out of private investment will reduce the expansionary effect of increased government spending. Is crowding-out a problem during a recession? Why or why not?
  • Discuss the following statement: “In order to finance its budget deficit, the US government must borrow from the private sector.” How does the government borrow from the American people?
  • Will fiscal stimulus in the short-run lead to increased growth or decreased growth in the long-run? Discuss.

Income Inequality and Standards of Living – Does a Rising Tide Lift All Boats?

Link to the Economics Blogosphere post:

Income Inequality and Standards of Living




Then read the linked article from NYTimes:

Income Inequality May Take Toll on Growth

Share your thoughts on the discussion questions below:

  1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
  2. Summarize the argument for a government reducing inequality.
  3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
  4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
  5. Should government intervene to reduce the level of income inequality in society?

Consumer Price Index and what is it?

The video below introduces the concept of Consumer Price Index as a measure of inflation and how it is calculated. In the video CPI is defined, calculating CPI is demonstrated, the limitations are explained.

Watch the video and respond to the discussion questions below:


1. Why the different items included in the CPI have different weights? What goods get larger weights?

2. What purposes is CPI used for? Why people care about changes in the price levels?

3. Outline one limitation of the traditional method to measure the rate of inflation .

4. Why did the Bureau of Labour Statistics decide to exclude the petrol and food prices from its ‘core CPI’?


US warns of new Sudan-South Sudan conflict over border

It is this time again- the start of the new school year. And the start of the journey in the exciting world of Economics.

One of the central themes of Economics is ‘scarcity’. Everything evolves around scarce resources and infinite wants of us, humans. This article from BBC makes an excellent point about the concept of scarcity and the lack of good will of the governments of Sudan and South Sudan can spark a war conflict between the two countries. Most of the oil resources are in South Sudan but all the pipelines are in the north. The lack of agreement on the division of the oil wealth can lead to a new conflict.