me that aggregate can be xpressed by the following function: W = 55 - 3Q, hile the aggregate supply curve can be xpressed by the following function: W = 5+7Q. lere W denotes wage level in thousand dollar and 2 denotes unit of labours in million people.
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- Jess owns a firm that uses labour (L) and capital (C) to sell widgets (X), according to the following production function: X = F(L,C) = ln(L) + ln(C) Jesse buys her factors and sells her output in perfectly competitive markets. The market prices for L, C and W are a, r and p, respectively. What is the firms demand functions for labour and capital. Say the central bank decides to increase interest rates, causing ? to go up. What effect will this have on the firm’s use of L and C? What effect will it have on output (X) and profits?Consider a closed economy. The only two factors of production in this economy are capital and labor. In this economy prices are fully flexible, factor markets are competitive, and the supply of the factors of production is fixed. Suppose there is a change in immigration policy in the country such that there is a huge influx of foreign workers into the labor market, other things being equal. Assume a Cobb-Douglas production function for this economy. a. Graph the effects that this new policy will have on i. The labor market, and the market for capital. ii. The loanable funds market Note: When drawing your graph correctly label all curves, axes, initial and final equilibrium values, and the direction of the change in any curve. b. Explain how the equilibrium values of labor, the real wage, saving, investment, and the real interest rate change.Consider an economy with production function given by Y = AK0:5L0:5 where A is the total factorproductivity (TFP), K is the capital stock and L is the labor input. For simplicity assume capital is xed and equal to 1. Assume A=100.a. Write the rm's problem of choosing labor demand. Derive the demand for labor as a functionof the real wage.b. Assume labor supply is inelastic and xed at L= 100. Find the equilibrium values of the wageand the employment level for this economy. Display graphically the labor supply and the labordemand curves. Carefully label your graph.c. Suppose the economy faces a positive productivity shock and TFP is now A=200. Displaygraphically the new labor demand function. What are the equilibrium values of employment andthe real wage?d. Compute the total output when A=100 and when A=200. What is the output's growth rate?Compare that growth rate with the growth rate in A. How does the growth rate of output percapita compares to the growth rate in A? Explain…
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- Consider a Ricardian framework with two countries, A and B, and two products, G1 and G2. The following table shows the marginal product of labour in G1 and G2 in both countries. G1 G2 Country A 3 7 Country B 7 5 Which one of the following independent scenarios is not possible at the trade equilibrium? A.Compared to autarky, country A workers receive the same real wage in G2. B.Relative price of G1 is 8/3. C.Compared to autarky, country B workers receive higher real wage in G1. D.Relative price of G1 is 5/7.Consider a competitive labor market. Using the model of how income is determined in a labor market, describe the effects on wages and number of individuals employed of an increase in the productivity of labor in that market. What will happen and why? In your answer, be sure that you describe why the supply and demand curves are shaped as they are.The labor market model (II): Now we add some parameters to the labor market model: labor supply: Ls = × w + labor demand: Ld = - w The parameters in this setup are , , and . (Notice that parameters are denoted with an overbar, a convention we will maintain throughout the book.) The parameter represents the number of hours workers would supply to the market even if the wage were zero; it therefore reflects the inherent amount of time people like to work. The parameter , in contrast, reflects the amount of labor the firm would like to hire if the wage were zero. It might be thought of as some inherent capacity of the firm (perhaps because the firm owns a given amount of land and capital that cannot be altered). (a) What is the economic interpretation of ? (b) What are the endogenous variables in this model? (c) Solve for the equilibrium of the labor market. That is, solve for the endogenous variables as a function of the parameters of…
- In the context of a perfectly competitive model of the labour market, an increase in technologythat raises the marginal product of labour at any given level of employment would be expected, inequilibrium, toa) reduce the amount of labour required to produce a given amount of output and hence increaseunemployment.b) shift the labour demand curve outwards and lead to an increase in employment and wages.c) have no effect upon labour supply or labour demand curves and hence have no impact onemployment or wages.d) reduce the supply of labour to the market and result in an increase in wages but a fall inemployment Why the correct answer is B?1. Evaluate the following claim in the context of the static general equi- librium model with production: “An increase in the wage causes labour demand to fall, and therefore makes households worse off.” explains in detail and not copy paste from the anywhereConsider the following model of a competitive labour market where both firms and workers have perfect foresight and symmetric information about the price level (that is, no misperceptions). Firms' technology is given by the production function y = a N ½ (production function) where a is a positive constant representing total productivity, N is employment and the elasticity of production to employed labour is 1/2. The government requires firms to pay pension contributions to the fiscal authority: the contribution is a small fraction x of the wage paid to each employed worker. Therefore, firms profits equal P y - W N - x W N and they are maximized taking the price level P, the nominal wage W, and the pension contribution rate x as given. Labour supply is given by: W = P b N where b is a positive constant. Answer all the following questions. a) Derive the labour demand schedule by solving the profit maximization problem of firms.