Demand and Supply Analysis

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University of Texas *

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3985K

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Economics

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Feb 20, 2024

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Q. Using Demand and Supply Analysis, discuss, with the aid of diagrams, how (a) the computing revolution, (b) international trade, and (c) immigration have contributed to rising income inequality in the US. For example, the import of goods made by low-skill workers abroad has depressed the prices of these goods in the US, causing low-skill workers in the US to become less attractive to firms (a worker is attractive to employers insofar as she can produce goods that will make her employer a large profit). The demand for low-skill workers in the US has, thus, decreased (leftward shift of the demand curve for low skill workers), causing their equilibrium wage to decrease. The wage gap between low-skill and high-skill workers has, as a result, widened, contributing to a rise in income inequality. (a) The Computing Revolution As computers advanced, so did the technical skills needed to use them. This surge of demand created fields of development and research that we know now as today as software development, data analysis, and information technologies. However, these fields are relatively new compared to others resulting in a low supply of workers that have the desirable technical skills. This results in scarcity and scarcity results I the high wages that these tech jobs get as an incentive for the workers. These high-skill workers will continue to get larger wages as our technologies advance, resulting in specialization. This in turn will cause the wages of low-skill workers to sink as they become less desirable. (b) International Trade International trade has certainly shifted the demand of skills here in the U.S.A, particularly in our desire of low-skill workers. The import of goods made by low-skill workers decreases demand for low-skill workers domestically which creates competition between domestic and foreign workers resulting in malleable pressure on wages and a decrease in the equilibrium wage. (c) Immigration Immigration is a reliable method to garner a large mass of low-skill workers which increases our labor supply, but due to the large supply, demand for low-skill workers decreases causing wages to decline or stagnate. This stagnation can evolve into wage suppression which will intensify income inequality.

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