1. The textbook had a small discussion of this topic. I am most concerned with the definitions of employment status and the types of unemployment.

   　

   . How Much Does the Economy Produce? The Production Function (Sec. 3.1)

   A) Know the factors of production

   B) Be able to use the production function and be able to calculate with basic function.

   D) The shape of the production function

   1. Two main properties of production functions

   a. Slopes upward: more of any input produces more output

   b. Slope becomes flatter as input rises: diminishing marginal product as input increases

2. Remember the graphs and be able to explain the shape.

In 1869, the typical worker in the U.S. manufacturing sector worked approximately fifty-six hours per week. However, as shown in Fig. 3.9, the average workweek in U.S. manufacturing declined steadily into the 1930s. Although various forces contributed to the shortening of the workweek prior to 1930, the main factor underlying this trend was sharply raising real wages. Increases in real wages over the late nineteenth and early twentieth centuries in the United States were driven by technological innovation and increased productivity and thus were largely permanent. In response to permanent increases in the real wage, workers reduced the amount of labor they supplied.

The response of labor supply to increases in real wages doesn’t explain all of the changes in weekly hours worked. For example, the relatively low number of hours worked per week during the 1930s reflects primarily the general economic collapse that occurred during the Great Depression. The sharp increase in weekly hours of work during the 1940s resulted in part from the threat to national survival posed by World War II, which induced workers to work more hours per week. Since World War II, the workweek in U.S. manufacturing has stabilized at around forty hours, with little decline despite increases in the real wage rate in the 1950s and 1960s. Post–World War II workers, however, have reduced the quantities of labor supplied in other ways, notably by retiring earlier and taking more vacation time.

The historical data given in Fig. 3.9 provide some evidence that, in response to a permanent increase in the real wage, workers choose to have more leisure and to work fewer hours per week. Figure 3.10 presents additional evidence, drawn from thirty-six nations. Each point in the diagram represents a different country. The horizontal axis measures real gross domestic product (GDP) per person, and the vertical axis measures the average number of hours worked per week by production workers in manufacturing. Workers in richer countries with higher wage rates (the United States, Canada) tend to work fewer hours per week than do workers in poorer countries with lower wage rates (South Korea, Bolivia). Because the differences in wages among countries reflect long-term differences in productivity, the fact that high-wage countries have shorter workweeks provides further support for the idea that permanent increases in the real wage cause workers to supply less labor.