Economics For Labor Market Outcomes Assessment Answer

Problem A

1.

If a free trade agreement established between Government of Industria and Attollia then the demand of the energy bar will increase. The main reason for increasing demand is the simple procedures of trading, which provide the free trade agreement between the two or more nations. With the free trade arrangement treaty such as FTAA or NAFTA among two or more nations establish a free trade zone where trade of goods and services can be easily conducted across the common borders of that particular nations, and there are no tariffs for the members of free trade agreement and the barrier are reduced for conducting business activities across the nations (Koh & Chang, 2004). However, capital or workforces cannot move freely. Usually the member nations who are involved in a free trade agreement by signing contract between the two or more countries generally enforce a uniform tariff, which is called ‘common external tariff’. The tariff has been imposed to the non-member nations.

If a free trade agreement established between Government of Industria and Attollia then the energy bar from industria can be easily traded in Attollia so that the demand of the energy bar will be definitely increased. More as the demand of the energy bar increased then for producing the energy bar the company Schmeckt Gut, which is the only producer of energy bar would require more labors thus the demand of labour will be increased (Peloso, 2005). Moreover, for increasing demand of product as well as workforces the wages is also revised and it also will be increased.        

2. The increase in labor demand of Schmeckt Gut is a good indicator for the Industria. The rate of unemployment will decrease that will help in the development of the economy. The development of labor market also helps to makes decision on the basis of demand and supply in the market. The rate of unemployment is the percentage of people that are currently out of the work. If the rate of unemployment is high then it indicates poor state of an economy (Krugman and Wells, 2006). Therefore, it is important for the economy to decrease its unemployment rate in the labor market. The development of labor demand will help to grow the economy of Industria. It is also important to consider the situation where an economy is not in a good condition with low unemployment rate and it happens when participation of labor force is low which means less people are searching for a job.

In the given case, the increase in labor demand will increase job opportunities for the working age people. If a large number of people that are considered as employed comes under underemployed which means these workers are not working or performing at their efficient level which may lead to decrease in the gross domestic product (Flinn, 2010). Therefore, all these indicators should be kept in mind while determining the economic condition of a nation. The increase in the rate of unemployment shows slowdown in the growth of economy and decrease in the demand of the energy bars.

References

Flinn, C. (2010). The minimum wage and labor market outcomes. Cambridge, Mass.: MIT Press.

Krugman, P. and Wells, R. (2006). Economics. New York: Worth Publishers.

Koh, T. & Chang, L. (2004). The United States Singapore Free Trade Agreement. Singapore: World Scientific Pub.

Peloso, J. (2005). Free trade. Bronx, NY: H.W. Wilson.