Overview: Resource Markets

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Resource markets have traditionally remained in the background in macroeconomics. Few economists believe that economic disturbances normally originate in these markets, and most of the controversy and focus in macroeconomics has been on the origin of disturbances. Yet resource markets play key roles in macroeconomics. They are the markets in which people obtain most funds they spend. They are also the markets in which we see the major problem of recession: unemployment. Finally, because at times these markets seem to adjust very slowly to disequilibrium, they help determine the path that output and prices take as a result of disturbances originating in other markets.

Economists generally focus on the largest resource market, the labor market, and ignore markets for land and various sorts of capital. These readings follow that practice largely because the labor market seems to be the most interesting of the aggregated resource markets.

Beginning in the 1960s economists started realizing that many problems in the labor market (and in other markets as well) could be explained in terms of difficulty of acquiring and using information. Wage stickiness and the short-run relationship between inflation and unemployment seem to be explainable in terms of information. Hence much of these readings discuss information problems in the labor market.

After you complete this unit, you should be able to:

  • Explain how the demand curve for a resource is derived from the product markets.
  • Summarize the conditions under which an employer will hire more of a resource.
  • List possible reasons why wages are sticky downward.
  • Distinguish between frictional and structural unemployment.
  • Diagram and explain the model of search.
  • Explain the conditions needed for search time to be of optimum length.
  • Describe the Phillips curve and the early interpretation of this curve.
  • Explain why the Phillips curve was considered an important addition to macroeconomics in the 1960s.
  • Explain what happened to the Phillips curve as the 1970s unfolded.
  • Explain why the long-run Phillips curve may be vertical.
Copyright Robert Schenk