Explain how, according to the theory of PSST (patterns of specialization and sustainable trade), economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer
With a specialized labor force, there can be times when the supply of some products cannot keep up with the demand for those products. For example, suppose that there is an increased demand for healthcare and education. Healthcare providers and educational institutions may not be able to keep up with the increased demand due to a shortage of labor that is legally qualified to work in those industries. It takes time for the labor force to be trained and licensed for this type of employment. As a result, sales decline, not necessarily because aggregate demand in the economy has dropped but because, as stated, businesses and labor are out of sync with what buyers want to buy. The current pattern of specialization and trade is unsustainable.
You might also like to view...
The long-run average total cost curve is less u-shaped than the short-run average total cost curve
a. True b. False Indicate whether the statement is true or false
If an industry consists of five firms each with a 20 percent market share, then the Herfindahl-Hirschman index would equal 1,600.
Answer the following statement true (T) or false (F)
Special interest groups are very unlikely to push for policies that increase the size of their slice of the economic pie if it means that the overall size of the economic pie will shrink
Indicate whether the statement is true or false
Suppose the average total cost of producing semiconductors in a factory of a particular size declines over time as more semiconductors are produced. This drop in average total cost might best be explained by:
A. economies of scope. B. economies of scale. C. diminishing marginal productivity. D. learning by doing.