Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 4, Problem 3E
(a)
To determine
Explain wages using production model.
(b)
To determine
Estimate the increase in wage if a third of the population died from disease.
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The Black Death: (a) Wages were higher after the Black Death because of diminishing returns. Our production model exhibits diminishing returns to labor: each additional unit of labor increases output by less and less. So if the amount of labor is reduced, the marginal product of labor — and hence the wage — increases. The reason is that capital stays the same: each remaining worker is able to work with more machines, so his productivity rises. In fourteenth-century Europe, the marginal workers could move to better land and discard old broken-down tools. Graphically, this can be seen by considering the supply-and-demand diagram for labor in Figure 4.2(b). If the supply of labor shifts back (because a large number of workers die), the equilibrium wage rate increases. Draw this graph — including the shift in the labor supply curve — to see the result for yourself. Mathematically, the result can be seen in the solution for the wage rate in our production model,…
Economics
Modify the Lewis model and assume that there is a
strictly positive marginal product of labor in the
traditional sector. Use figures with production
functions in the traditional and the modern sectors
to show what the equilibrium is when no one
wants to move away from agriculture. What
assumptions do you have to make about
production functions to arrive at the conclusion
that fewer people will end up in agriculture?
Use the same starting point as in the above
question. Derive the demand for labor in the
traditional and in the modern sectors. Show
graphically what the characteristics of the
equilibrium would look like when no one wants to
change sectors.
Comment on the following statement. Analyze from an economic standpoint. Do you agree or disagree?a) Rising productivity means that it takes fewer workers to produce a given level of output. Productivity increases are therefore a source of unemployment“.b) It is impossible that you are worse off with a wage increase than you were before it“.
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