PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 8, Problem 6P
(a)
To determine
Explain the change in equilibrium wages of skilled and unskilled workers after the introduction of electronic equipment.
(b)
To determine
The effect of skill acquisition by the unskilled workers on the supply and equilibrium wages of skilled and unskilled workers.
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Ian works at an iron smelter in Pittsburgh, the center of iron
production in America. Due to the difficulty in measuring
the productivity of individual employees, Ian's employer as
well as the other iron smelters all pay an efficiency wage.
Adjust the wage line on the graph to reflect this situation.
What characteristic of efficiency-wage jobs is not
supported by the situation shown in the graph?
The wage rate will eventually return to the
market-clearing level.
Efficiency wages result in an increase in the rate
of unemployment.
Elevated wages serve as an economic incentive to
work harder.
Efficiency wage jobs result in a surplus of workers at
the wage being offered.
Wage ($ per hour)
Wage
Quantity of workers (in thousands)
S
O
1. The demand for labor
Consider Live Happley Fields, a small player in the strawberry business whose production has no individual effect on wages and prices. Live Happley's
production schedule for strawberries is given in the following table:
Labor Input
Total Output
(Number of workers) (Pounds of strawberries)
0
WAGE RATE (Dollars per worker)
300
Suppose that the market wage for strawberry pickers is $170 per worker per day, and the price of strawberries is $12 per pound.
270
On the following graph, use the blue points (circle symbol) to plot Live Happley's labor demand curve when the output price is $12 per pound.
Note: Remember to plot each point between the two integers. For example, when the number of workers increases from 0 to 1, the marginal revenue
product of the first worker should be plotted with a horizontal coordinate of 0.5, the value halfway between 0 and 1. Line segments will automatically
connect the points.
240
210
180
150
120
90
60
30
1
0
2
3
4
5
0
0
18
34
48
60
70…
Consider Special City that manufactures light fixtures that are sold around the world. Draw their base case Labor Market graph. Now assume there is a national shortage of glass that Special City manufacturers use to create their light fixtures. Show what would be the effect on your Labor Market graph. Lastly, assume the manufacturers change their manufacturing process to use less glass but inadvertently create a very noticeable increase in the smog levels that makes it hard to breathe. Show another variation to reflect the change in your labor market graph, be sure to indicate the effects of the changes on for each of these market changes or combine the graphs, just be sure the changes and new equilibria are legible:
Chapter 8 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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