Law of Demand. Law of Supply

One of the most important building blocks of economic analysis is the con­cept of demand. When economists speak about demand, they usually have in mind not just a single quantity demanded, but what is called a demand curve. A demand curve shows the quantity of a good or service that is demanded at successively dif­ferent prices. The most famous law in economics, and the one that economists are most sure of, is the law of demand. Almost the whole system of economics is built on this law. The law of demand states that when the price falls, the amount de­manded rises. Some of modem examples of the law of demand are from economet­ric studies which show that when the price of a good rises, the amount of it de­manded decreases. Nobel Laureate George Stigler said years ago that if any economist found a true counter example, he mould be rapidly promoted. The fact that no one has come up with an exception to the law of demand shows how rare the exceptions must be.

The law of supply states that the quantity of a good supplied rises as the market price rises, and falls as the price falls. Conversely, the law of demand says that the quantity of a good demanded falls as the price rises, and vice versa. One function of markets is to find equilibrium prices that balance the supplies of and demands for goods and services. An equilibrium price is one at which each pro­ducer can sell all he wants to produce and each consumer can buy all he demands. Logically, producers always would like to charge higher prices. But even if they have no competitors, they are limited by the law of demand: if producers insist on a higher price, consumers will buy fewer units. The law of supply puts a similar limit on consumers. They always would prefer to pay a lower price than the current one. But if they successfully insist on paying less, suppliers will produce less and some demand will go unsatisfied. Economists often talk of supply curves and de­mand curves. A demand curve traces the quantity of a good that consumers will buy at various prices.

Unemployment

We say that unemployment exists where people capable and willing to work are unable to find suitable paid employment. But where an economy is adapting to changing conditions, there will always be some persons unemployed as they change jobs or as seasonal work comes to an end.

Unemployment may occur for many different reasons. There will always be some people changing jobs. In certain occupations, e.g. unskilled labour in the construction industry, workers are not employed regularly by one employer. When a contract is completed, labour is not required. Occasionally workers are discharged when a factory is being reorganized.

Unemployed workers usually register at the local employment exchange from which employers can hire them. The unemployed are paid certain benefits.

Employment in some industries, e.g. building, fruit picking is -seasonal in character. Seasonal employment can be reduced out of "season" and admit such persons as students and housewives during the busy period. Sometimes there are unemployed workers of a particular occupation in one part of the country but a shortage of the same type of work in other parts. Thus today there is a surplus of unskilled and manual labourers in the north of England, whereas firms in the London area have vacancies unfilled. Two main reasons can be suggested for this type of unemployment — ignorance of opportunities and immobility of labour.

Workers may be in "between jobs". Some of them are looking for better jobs, others are seeking better salaries. Young people search for their first jobs. This is called "frictional unemployment". This type is usually short-term and regarded as inevitable. In some situations workers find that their skills and experience are unwanted by these changes. This type of employment is more long-term and regarded as more serious. It is known as structural unemployment.

The full-employment or natural rate of unemployment ranges between 5 and 6 percent.