Question

1.      We know that technological advancement results in structural unemployment in firms that shut down or when the labor is laid off. Economist argue that this actually creates wealth. Please explain how would this create wealth?
2.      Suppose you are a financial advisor that earn $30,000 a year. You quit your job to open up a store selling household cleaning supplies. You are using the store that you own and were renting it out to your brother for $12,000 a year. In addition, you invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate your accounting profit. Calculate your economic profit. Should you continue with this business or should you go back to financial advisor job. Why?

Answer 1

Q. We know that technological advancement results in structural unemployment in firms that shut down or when the labor is laid off. Economist argue that this actually creates wealth. Please explain how would this create wealth?

Answer :

Structural unemployment arises due to skill gap between the jobs available and the skill levels of the unemployed. Usually older people are more affected than younger people. Further it is hard to adress the structural unemployment since the job added will be of low quality which one would be able to do without adequate skill.

e.g. Webbased portal and newspaper have hard impact on printed news paper and journals which resulted into number of job losses for unskilled people.

Structural unemployment increases income inequality. The industry getting technology advancement results into increasein profitability hence it cretes wealth for business ownder however the irony is that the person who looses job reamins unemployed for larger period of time.

Q. Suppose you are a financial advisor that earn $30,000 a year. You quit your job to open up a store selling household cleaning supplies. You are using the store that you own and were renting it out to your brother for $12,000 a year. In addition, you invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate your accounting profit. Calculate your economic profit. Should you continue with this business or should you go back to financial advisor job. Why?

Answer :

Accoutning Profit = Total Revenue - Explicit Cost

40,000 = 50,000 - 10,000

Economic Profit = Total Revenue - Explicit Cost - Implicit Cost

-7,500 =50,000-10,000 (explicit cost) - 12,000 (Rent - Implicit cost)-500 (Interest on capital invested - implicint cost) - 30,000 (Oppurtunity cost for Job - Implicit cost)

Since the economic loss earnt is 7,500 due to business hence business should be closed down and i should go back to Job