Question

Question 9 b. Labor Supply and Demand as Functions of the Money Wage N'(3P), N°(2P) VN (P1) Money Wage MPN 3P, MPN. MPN 2 P N N N Employment Assume initial full employment at W1 and N1. How might a technological change that increased productivity influence the labor market equilibrium? full employment could move to 2W and N2 full employment will remain unchanged at 1W and N1 technology will replace workers and the new equilibrium will be at N2' wages might rise to 3W but employment will remain unchanged at N1

Answer 1

Inital full emplement at w, and wi (interdection point of Mpw. Pe and N(P12 A technological change that increased produchnity shifto the production function upward as a result labor demand curve shifts upward too from MPN 2 to MPN. 2P ur it e might shift to NPP. 39 If demand curve shifts to MPN. 2P. then epul borum occurs at the intersection punt of N (281) and MPN. 2P, . Therefore equilibem wage ride to zw, and equillibrum employment remains at NI If demand curve shifts to Hrn. 31. then egulibrum occurs at the intersection pont of N' (3 P.) and MPN.BP. Therefore egilibrum wage ride to e, and equilibrium employment remains at No. Hence, wage might rise to 3w but emplyment will remain unchanged at Ni Answer: option (A)