Scribd Logo
Upload

Welcome to Scribd!

  • Classical Theory of Employent

    Uploaded by

    prernalodha
    10 views6 pages
    The classical theory of employment held that: 1) A market economy with laissez-faire policies would naturally achieve full employment through market automatism and price/wage flexibility. 2) Say's law stated that supply creates its own demand, and that production generates income and demand for output. 3) The theory was based on assumptions of perfect competition, elastic markets, rational actors, and no economic "leakages" that could cause inadequate aggregate demand.

    Original Description:

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The classical theory of employment held that: 1) A market economy with laissez-faire policies would naturally achieve full employment through market automatism and price/wage flexibility. 2) Say's law stated that supply creates its own demand, and that production generates income and demand for output. 3) The theory was based on assumptions of perfect competition, elastic markets, rational actors, and no economic "leakages" that could cause inadequate aggregate demand.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    10 views6 pages

    Classical Theory of Employent

    Uploaded by

    prernalodha
    The classical theory of employment held that: 1) A market economy with laissez-faire policies would naturally achieve full employment through market automatism and price/wage flexibility. 2) Say's law stated that supply creates its own demand, and that production generates income and demand for output. 3) The theory was based on assumptions of perfect competition, elastic markets, rational actors, and no economic "leakages" that could cause inadequate aggregate demand.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 6

    THE CLASSICAL THEORY OF EMPLOYENT

    Classical Analysis
    Adam Smith, David Ricardo, J. B. Say Long term Analysis Supply Oriented Efficient Allocation of Resources Existence of Full Employment: Frictional,

    Voluntary exist Little emphasis on demand side Concerned with the different types of Goods and Services to be produced Relative price structure of different goods and factors of production

    Says Law of Market


    Supply creates its own demand

    Production of output generates purchasing power


    Productive process has two effects: A) Employment of FoP ; Income stream is

    generated B) Resultant Output is supplied to the market Two main Propositions: Production is the sole cause of demand Overproduction is ruled out O = Y = E

    Assumptions:
    Optimum Allocation of Resources Perfect Equilibrium: D and S Perfect Competition: Com.( AR= AC) and Factor

    Market Market Economy: Free enterprise Laissez- Faire: Economic field Elastic Market: Market expands with Increase in output Market Automatism: Increase in Population is absorbed Circular Flow: No leakages, hoarding Savings- Investment Equality: Interest Flexibility Long Term

    Implications of the Law


    Automatic attainment of full employment: Free

    economy Self- adjusting mechanism: No Govt. intervention No deficiency of aggregate demand No general unemployment: No overproduction Price-Wage Flexibility: Involuntary unemployment cured by wage cut Automatic resource adjustment and utilization: New doesnt supplant the old Built in Flexibility: Laissez- faire Interest Rate flexibility causes equilibrium

    Price Wage Flexibility


    If Savings

    Consumption Expenditure

    as (Y=

    C+ S) AD ( AD= C+I+G) Thus Price AD The surplus output will be cleared off the market The classicist believed that when S Price but O Sellers will not tolerate falling prices for long They will bring down their CoP by Wages Some labourers will refuse to work at lower wages Voluntary Unemployment 1930 Pigou suggested wage-cut to Unemployment

    You might also like