By Frederic S. Mishkin
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3 A coffee lover’s indifference map. 4 Consumer equilibrium. © 2004 Tony Cleaver B All other goods Given his fixed income, he will choose that combination which maximises his utility – that which allows him to reach the highest level of satisfaction. 4 is clearly higher than the levels of satisfaction represented by points y and z. 5 A price change. What happens now to this individual’s demand for coffee if its price falls? 5), though if he chose to buy no coffee at all then since the price of no other good has changed he is still constrained to point B.
This is largescale, demand-deficient unemployment. Governments may thus be petitioned to provide support for those the market no longer requires, but this can only be a short term palliative. If demand for one type of product has moved on then the only long-term solution is for labour to move likewise and produce something else. If rare skills are no longer needed, the unemployed must learn others. Te c h n o l o g i c a l U n e m p l o y m e n t The substitutability of a specific resource also affects its price and employment and this in turn is affected by technological change.
Output Total cost Average cost 1 2 3 4 5 6 7 8 9 10 100 150 180 200 230 270 322 400 495 600 100 75 60 50 46 45 46 50 55 60 Note The optimum scale of output in this example is at 6 units. 1 A typical profile of average production costs. © 2004 Tony Cleaver As a firm grows in size it benefits from certain cost advantages or For example, storing or processing goods in a large container is cheaper per unit volume than producing them in small packages. This is relevant to processes that involve constructing buildings, transporting oil, selling boxes of soap powder and indeed in making almost anything.
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