Answer each of the following questions in full sentences. Use a graph if it helps with your explanation.

1. Define and explain Frictional, Structural and Cyclical unemployment.

1. Explain the difference between a Normative and a Positive statement. Why is this important?

1. Explain the basic Consumption – Leisure choice model.

1. Explain the importance of the slope and the curvature of the isoquant on a graph measuring pairs of capital and labour.

1. Show and explain the difference in the wage – dirt curve when there are identical workers and identical firms.

Answer preview

1. Define and explain Frictional, Structural and Cyclical unemployment.

According to Wagner, (2014), frictional unemployment is a type of employment which occurs because of the change of occupation.  It takes time before the workers get new opportunities. Therefore, frictional unemployment happens because of normal turnover in the labor market. Cyclical unemployment takes place because of ups and downs in the economy. It occurs due to the changes in the economic cycles. During recession many people losses their jobs. For instance, in 2008, US employees experienced cyclical unemployment during a financial crisis. Structural unemployment occurs as a result of the shift in the economy due to technological change. Additionally, it occurs when companies are unable to provide the unemployed with jobs that fit with their skills.  For instance, currently, industries have adopted the use of modern technology throughout the economy. Therefore, they need to hire people with technical skills such as programming…