What is the difference between the Full Employment and UnderEmployment Equilibrium

Full Employment Equilibrium and Underemployment Equilibrium are two different states in an economy, which are explained as follows:

1. Full Employment Equilibrium: This is a situation where all available labor resources are being used in the most economically efficient way. In other words, the economy is producing its maximum possible output of goods and services. In this state, there is no cyclical or deficient-demand unemployment. However, other types of unemployment, such as frictional unemployment (short-term joblessness caused by the process of matching workers with jobs) and structural unemployment (long-term joblessness caused by a mismatch between workers' skills and the skills required for available jobs), may still exist.

2. Underemployment Equilibrium: This is a situation where the economy is stable, but there is underemployment. In other words, the economy is not producing at its maximum possible level of output because it is not using all available labor resources. This could be due to a lack of demand in the economy, which leads to lower production and hence less demand for labor. In this state, there is cyclical unemployment, which is caused by a lack of demand.

The main difference between the two is that in full employment equilibrium, the economy is operating at its maximum potential, while in underemployment equilibrium, the economy is operating below its potential due to underutilization of labor resources.