Macroeconomic Equilibrium and Market Efficiency
Macroeconomic Balance
The economy is in equilibrium where aggregate supply and demand intersect. If the price level is higher than the equilibrium price, excess supply leads to a price decrease. Conversely, if the price level is lower, excess demand causes a price increase. Both scenarios lead to the equilibrium point. The equilibrium production level may be below full employment due to inefficient resource use.
Changes in Aggregate Demand
Pessimism among economic agents, reduced household spending, and postponed business investments shift the aggregate demand curve leftward. This reduces economic activity, causing a recession and decreased employment. Improved expectations, increased spending, and higher investments shift the curve rightward, leading to economic recovery and increased employment.
Changes in Aggregate Supply
Increased production costs (e.g., poor harvests, rising oil prices) shift the aggregate supply curve leftward. This reduces production, worsens employment, and increases prices, causing inflation. Favorable circumstances like lower costs, technological improvements, or positive expectations shift the curve rightward, benefiting output and employment. Government intervention through taxes and interest rates can influence aggregate demand. Lowering interest rates encourages consumption and investment, increasing aggregate demand, production, and employment.
The Underground Economy
The underground economy comprises undeclared economic activity, excluded from GDP. Reasons for non-declaration include tax evasion, avoiding social security and labor regulations, and illegal activities. Examples include hiring undocumented workers, underreporting income, and evading VAT. The underground economy is growing in Europe, with some companies using it to reduce costs. Workers in this sector are often undocumented immigrants, not counted in unemployment statistics.
Problems of the Underground Economy
- Reduced government revenue, leading to fewer public services.
- Precarious employment lacking worker protections.
- Obstacles to regular employment seekers.
- Unregulated goods and services posing safety and health risks.
The underground economy is a problem affecting everyone.
Music Piracy
The music industry, an oligopoly controlled by record companies, maintains artificially high prices due to lack of competition. The internet facilitated high-quality music piracy, challenging the industry’s pricing practices.
Lack of Competition
When there is no competition in the market because of monopoly positions are maintained or oligopolip, the producotores use their power to impose a prices and quantities of product that are not meeting the desires of consumers, because they produces less and even higher price in relation to the conditions of perfect competition. excessive market power may also lead to abusive practices, not only in pricing but also in less attention to the rights of consumidor.Todos these negative effects of lack of competence of public concern.
1.4 ASSETSPUBLIC A public good is one whose consumption by one individual does not reduce, nor real, and potentially the amount available to another individual. we must distinguish between pure public goods and not pure. Pure public goods: are characterized by non-rivalry in consumption and exclusion is not. Not pure public goods: they can be rival in consumption and may practice exclusion.se meet collective needs.
IMPERFECT 1.5INFORMACION For markets to be efficient information must be perfect but this does not happen often. there are deficiencies in relation to three variables. 1: quality-a consumer has no precise information about the quality of goods or services. 2: Price-in some goods or services price information is costly. 3: Future-if the information about possible future contingencies is not too large it would violate this assumption, hence the state should compel companies to set a lasting guarantee of their products.
1 .6 MARKET, EFFICIENCY AND EQUITY assumes that the market is the way to organize economic activity more efficient there. It is said that the market economy is efficient because it uses the fewest possible resources for a quantity of production and determinanda consumers purchase the products at low prices in relation to costs. the market economy can be mui efficient but does not guarantee Occitan d ela income distribution, there may be and in fact there are groups that do not have any income whatsoever. raise taxes on those earning high salaries improved equity, but weakens incentives to work and save, hurting efficiency.
7 the state of welfare The welfare state emerges in the era of prosperity that the economies of europaoccidental lived after the Second World War. During those years the governments of these countries were aware of the need to ensure citizens a number of conditions to enable them to lead a dignified life. ie they had to have access to a range of public services guaranteed by the state. The beneficiaries of the welfare state at the expense prestacioines-contributory. The beneficiaries are those who previously contributed ham with social security contributions for a certain period of time. is this group are contributory benefits, unemployment benefits or disability benefits. Taken together represent more than half of social expenditure due mainly to the significant burden of pensions. b-universal benefits such as health education aimed at the entire population and only require that the recipient may seek. c-The compensatory benefits for the groups without or with very few resources recuersos. The future of the welfare state The welfare state is financed by social security contributions of employers and employees in the tax system taxes. If those expectations are met with an aging population in developed countries, social spending by increasing pensions spend 10% of GDP in 2004 and 15.7% in 2050 to open an addition to the health needs increase due this MYORES life expectancy: