Question

2. a. Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.

b. When we consider all factors of production, such as labour, capital, and land, how can we find the market equilibrium? How do the changes of supply of one factor of production affect the use of other factors of production?

c. In 2014, the dangerous Ebola virus entered Canada when a Canadian resident returned to Canada after contracting the virus while visiting Liberia. Suppose this virus had not been contained and had spread to the general population. Describe the resulting effect on labour productivity. (Assume that the virus is lethal in half of the people who are exposed to it.)

Answer 1

Hi,

Equilibrium Stage -ES is that stage where demand of factors is equal to supply of factors that means demand is equal to supply(demand=supply).If any change in demand or supply or both then equilibrium is establish at next point or next label.

Equilibrium point is that point where MRP=MC

in respect of production there are many factors of production.mainly are labor,capital & land.

a.Question-

Answer-

Equilibrium stage of market of land- Land is very important factor of production and inelastic in nature.We can not produce more land.Land market is at equilibrium stage where demand of land is equal to supply of land.If MC>MRP then organization would not employ the land factor and vise versa but in this case when demand of land would increase then price of land will be increased because land is perfectly inelastic in nature.

Equilibrium stage of market of capital- All conditions and criteria of land market is also applied for capital market.Capital market is at equilibrium stage where demand of capital is equal to supply of capital.If MC>MRP then organization would not employ the capital factor of production and vise versa but in this case when demand of land would increase then price of capital will be increased or because it will depend upon the supply of capital.

The price factor is also relate to the storage of resources/factors of production.if production factor's requirement is fulfilled by internal sources or storage then price of factors will not be affected.But at the same time company also try to maintain equilibrium stage where, MC=MRP.

b.Question-

Answer-

We have already discussed above all about the equilibrium point.When a organization produce any thing she uses all the factors of production (land,labor,capital) at one time with the required units where MRP=MC.But when demand of product(produce by company) is increase then company readjust all the factors. Either company use more unit of that factor which MRP>MC or use that factor which is available at low cost than others.

but in case of land there will not be change in supply of land because of perfectly inelastic in nature.So it will be replaced by other factor of production.In all situations equilibrium will be established at next point. but at another point will be established where MRP=ARP. because of cost factor.

C.Question-

Answer-

Ebola virus is a very dangerous virus and communicable disease in nature. Its spread frequently.If it had spreed to the general population then people became ill and suffered by low productivity or zero productivity. A big part of labor force on leave and productivity of organization is decreased by that proportion.Other cost of organization like,medical cost ,replacement cost etc also increased.Supply of labor decreased.

Thank You