Introduction to Economics GEN1704.2/ECN1101.2 L, Mussurov Altay

In some industries, economies of scale are so strong that it makes most economic sense for there to be only one supplier. This type of industry is considered a natural monopoly, since competition will eventually tend to concentrate output in one producer (and this is, in any event, the most efficient way to organize production). Governments usually attempt to oversee the operation of natural monopolies through either public ownership or regulation.

According to neoclassical economics, the wage rate is determined by a process of labor-market clearing (in which workers and employers compete with each other, ensuring that labor supply equals labor demand). Why, then, do we almost always observe unemployment? Neoclassical theorists argue that observed unemployment reflects frictional, structural, or disguised effects that are consistent with labor market clearing. In other words, this “natural” level of unemployment is, in fact, full employment. It is fruitless, in this view, to try to reduce unemployment below this natural level. misguided attempts to do so only create inflation. Unions, minimum wages, and other “market-inhibiting” measures will tend to increase the natural rate of unemployment.

Nominal gross domestic product measures the total value of all the goods and services produced and traded for money in the formal economy, evaluated at their current money prices. Nominal GDP can grow from one period to the next because of an increase in actual (real) output, and/or because of an increase in average prices (that is, as a result of inflation).

Some products cannot be transported over long distances, or otherwise sold to consumers from far-off locations. These products (including some goods and most services) are hence considered non-tradeable. they must be consumed near to where they are produced. Non- tradeable products include most construction, some manufacturing (such as highly perishable or extremely bulky products), most private services, and nearly all public services.