Question

17. Assume that there has been an increase in the marginal productivity of construction workers building new housing. How might this affect the market for new housing? Supply of new housing will fall, leading to an increase in the equilibrium price and decrease in the quantity of new housing Demand for new housing will fall, leading to a decrease in the equilibrium price and quantity of new housing Demand for new housing will rise, leading to an increase in the equilibrium price and quantity of new housing Supply of new housing will rise, leading to an increase in the equilibrium quantity and decrease in the price of new housing

Answer 1

Increase in the marginal productivity of the construction workers will help in the increased supply of houses. Marginal productivity of labour refers to the increased output which has come into account due to an increase of an extra unit of labour. With the increase in the marginal productivity of workers the number of houses which could be build at a given time period will increase. Hence, the supply of houses will increase, demand remaining constant. With the increase in the supply of the construction workers the supply curve will shift to the right, the demand curve will remain the same. Hence, the equilibrium prices and quantity will change from the initial price and quantity. The price will decrease with the rising supply and the quantity of buildings will also increase. The graph showing the increased supply curve is given below, the initial supply curve is S(0), the increased supply curve is S(1), they demand curve is D(0), the initial price level us P(0) and the decreased price level is P(1), the initial quantity is Q(0) and the increased quantity level is Q(1).

null