There Has Been Considerable Debate as to the Appropriate Level

question 43

Essay

There has been considerable debate as to the appropriate level of Employment Insurance benefits paid out to
unemployed workers. What do models of labour market search tell us about the effects of employment
insurance benefits and their effects on the economy? Explain what conclusions we can draw concerning the
optimal generosity of the employment insurance program.

---

Definitions:

Allocative Efficiency

A state of the economy in which resources are allocated in a way that maximizes the overall benefit to society, with goods and services produced at their highest-valued uses.

Purely Competitive

A market format where numerous small companies offer an identical product with no barriers to entering or leaving the market, resulting in firms accepting the market price as given.

Marginal Benefit

The further utility or pleasure gained from consuming one additional unit of a good or service.

Creative Destruction

A concept in economics introduced by Joseph Schumpeter, describing the process by which old industries or technologies are destroyed and replaced by new ones.