Vacancy, Unemployment, Rule of Seventy, & Supply of Capital

Applying Economic Concepts

Vacancy Rate

Assume an apartment vacancy rate of 5%. Why is there still vacancy when substantial numbers of individuals are searching for new apartments.

While there is a great deal of demand for apartments which could fill the vacancy rate of 5%, there are other factors which must be considered. One major factor is the fact that apartment owners desire to have reliable renters while at the same time, potential tenants desire to find the best apartments. The search process is the same as within the labor market. This factor results in a process of search, just like in the labor market where there is constant openings and constant vacancies because of the search creating delays in renting. Apartment vacancies are similar to job vacancies and potential tenants are similar to the unemployed. A great example of this phenomenon can be seen during the 2008/2009 economic crisis in which unemployment skyrocketed. Even though there was double digit unemployment there were still jobs that were unfulfilled. These jobs remained unfilled because either the potential hire was not qualified or could not take the job for some reason, while at the same time employers were forced to turn away workers for the same types of reasons. When discussing this search process in terms of unemployment it is referred to as frictional unemployment.

Unemployment Rates in Major Cities and Frictional Unemployment

The high rate of unemployment in cities can be explained in terms of frictional unemployment because factors surrounding workers and factors surrounding jobs are dissimilar in nature. This dissimilarity can be seen in the differences between supply and demand. The labor supply may have skills, financial needs, work histories, etc…which are not compatible with job demand. This creates a level of unemployment which is constantly present. In the scenario of people migrating to cities for higher pay the frictional unemployment may increase tremendously because workers from the rural areas may come in large droves and at most will not possess the skills necessary to fulfill the occupations. Even if the workers have the skills necessary this could still significantly increase the unemployment because the supply of workers will outstrip the job demand.

Using the rule of 70 explain differences in GDP growth rates.

Assume one country has a GDP one-eighth its neighbor, but the poorer country grows 10% per year while the richer country grows at 2% a year and these rates remain static for 35 years. Using the rule of 70, if the poorer country grows at 10% annually, it will double its GDP in 7 years (70/10). Across 35 years the poorer country will have doubled its GDP 5 times if it maintains its annual growth rate. In contrast the richer country will double in once at the end of 35 years. It should be noted that without the original GDP values it is impossible to say which country will have the larger GDP after 35 years.

Electronic Health Records and Supply of Capital

The main benefits from the implementation of electronic health records include

· quick and easy access to the patient’s medical history
· better communication
· better decisions
· safer care
· increased efficiency

The unintended benefit of the electronic health records is that as a result of better and more efficient healthcare this will reduce the cost of mistakes and will allow healthcare professionals to more efficiently service clients. As a result of this increased efficiency and lowering of cost the supply of capital will increase and labor supply may need to be increased in order to service more patients. One of the key factors in the increase of labor and capital will result from the reduction of redundant procedures (i.e., performing unnecessary tests) which causes extreme lack of efficiency.

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