wk 4 forum homework that require 450 words respose ECON 102   Week 4 Forum: Discussion Forum 4: Price-wage rigidity

ECON 102  
Week 4 Forum: Discussion Forum 4: Price-wage rigidity

Class,

    Price-wage rigidity is the failure to adjust the real wages and prices to equilibrium levels due to value effect tied to the each other. Therefore, price and wage are not flexible entities that can be fixed when needs arise. I incline to the Keynes concept of government involvement in the markets. When the government is included in the fixing of the wage and price rigidity, there is balance in the marketplace providing the economy a base to foot. When one compares the free market that can correct itself, it means a recipe for another depression. When the market is free, the menu in a restaurant can change when one is already close to finishing their meal. Keynes assessment stipulates that not all government expenditure converts to people and instead of a saving pattern, which grows to equip the nation for future eventualities id, observed. If the government does not control price-wage rigidity during the high demand, the downturn will cause havoc in the economy. It is plausible to identify that the government in instances like recessions has to allow the economic recovery through monitoring the rigidity of wages and prices. Essentially, the government is there to assist the economy recover from the recession. Therefore, recovery will tend to shift with the wages and prices falling when necessary for a semblance of equilibrium. Further, if prices and wages are the stick that the required levels then it will be challenging to reach recovery, as the people will tend to lose their jobs while companies try and maintain their markets. 
Reference 
Arnold, R. A. (2008). Microeconomics. Mason, OH: Thomson/South-Western.

#1 requires 150 words response Dr. Leiter,

James…Keynesian economists argue that the price and wages of an economy are much more rigid. Keynesians suggest that because of the rigidity of price and wages that the government must step in to force them to move. Both sides do realize that price and wages move they instead argue how quickly they move, Classical economist suggest that they will move quickly while Keynesian economists suggest that they are much slower to move. From Keynesian economist arguments, we get price-wage rigidity and what external forces must be applied to make price and wages move. Adam Smith, a classical economist, would argue that given enough time, the free market would self correct and generate stability without government intervention. Good analysis James.

#2 150 words response to Justin, 

Class,

My understanding of price-wage rigidity after reading the materials for the week is that it is prices and wages do not adjust to a level in sync with the overall market. I also took away from the materials covered this week that classical economists speculate that business cycles to include prices and wages will naturally adjust as time goes on without the need for the government to step in. On the otherhand, you have Keynesian economists who speculate that prices and wages are likely to be stiffer on the downside flow of the economy. Keynesian economists believe that prices and wages require that the government step in for everything to level out.

Me personally, I do agree with Keynes assessment on wage-price rigidity and that government involvement is required.  First off, I feel that it helps equal out wages and prices in the economy so that one does not overpower the other. I think the government is responsible for stepping in and setting a basic wage (minimum wage), which is enough to keep up a workers lifestyle without causing the unemployment rate to rise. I also agree with Keynes in the aspect of exporting goods to other nations with the intent of strengthening the value of the American dollar. Forming trade agreements with other countries such as Mexico or Canada is a great way to improve the economy while also focusing on the GDP of our own country. Keynes theory helps keep workers working while making sure they still have the spending power to buy goods which helps our economy. This theory also keeps goods from being too high which could potentially cause an offset for wages being earned by workers.

References

Rittenburg, L., & Tregarthen, T. (2009). Measuring Total Output and Income.  Principles of Macroeconomics. Irvington, NY: FLatworld Knowledge. Retrieved October 23, 2017, fromhttp://ezproxy.apus.edu/login?url=http://ebooks.apus.edu/ECON102/Rittenberg_Ch13-15.pdf

#3 150 words response to Lee, 

Wage rigidity or "stickiness" means simply that wages are not adjusted throughout the term of the employment contract (Rittenberg). Essentially with or without a formal contract. everyone experiences wage rigidity in their job. The only time that wages fluctuate are at the end of a term (week[s], month[s], year[s]) or when wages are renegotiated.

Price rigidity or "stickiness" is affected by wage rigidity. A firm can produce a product without worry of production variables such as cost of assembly and fix their price to "wait and see" how the market reacts (Rittenberg). Firms may also determine that their pricing is correct for their product and adjust output or employment (in quantity of employees or wages) to address any profit margin issues.

Whether or not the government should be involved in price-wage rigidity is an interesting question, which for me has a complicated answer. I can see both sides of the argument having valid points. Without government intervention, some would say that firms may take advantage of the populous through either unfair wages or inflated pricing. The other side of the argument would be that supply and demand (of products or labor) is self-correcting. By that, If employers are offering wages that are too low, the jobs will go unfilled and they will be forced to raise wages to attract employees. The inverse is true for their products. If they ask too much for what they are selling, no one will buy it, and they will be forced to reduce their prices to sell their products.

I know that this week's forum poses a why or why not question. However, I feel that with most things, including this subject, it isn't quite black and white. I believe that some government intervention is good, but they should be overly restrictive or controlling. I will use an example to reinforce my stance. Minimum wage, a very hot topic right now, is a great example. I believe that there should be a minimum wage, in order to protect unskilled workers from being undervalued. However, I also believe that minimum wage should not be a "living wage" for one to support a family from. It is a base wage for employers to start from. This allows the employer-employee dynamic to flourish in that the employer must pay $X per hour, but the employee has the opportunity to make themselves more valuable to their employer and garner higher wages. This affords basic economic stability for employees, without the possibility of stifling business (economic) growth.

Works Cited

Rittenberg, Libby and Tregarthen, Timothy. Principles of Macroeconomics. Flat World Knowledge, Inc., n.d. 4 October 2017.

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