than in cases of resources not being used at all. Nonetheless, misallocation canhave a large effect on efficiency.With respect to economic growth, a significant form of this inefficiency ismisallocation among sectors-that is, directing resources to the wrong sectors(distinct parts) of the economy. These sectors may simply be the different regionsAlternatively, in most poor countries, we can distinguish between anof a country..urban sector, with advanced modes of production and organization, resembling amore industrialized economy, and a rural sector in which production technologiesremain primitive.Why would misallocation of factors among sectors ever take place? To see howmisallocation can happen, we must step back and ask a more basic question: Whywould we expect resources to be optimally allocated in the first place?We consider this problem in a simple setting. Suppose there are two sectorsin the economy, called Sector 1 and Sector 2. In each sector, there is a productionfunction by which capital and labor are transformed into output. Total output ofthe economy is the sum of the output in the two sectors. We can now ask a simplequestion: If the quantities of capital in each sector are fixed, what is the optimalallocation of labor between the two sectors that will maximize the total output ofthe economy? The answer, which you may remember from previous economicscourses, is that the value of output will be maximized when the marginal productof labor in the two sectors is the same.Figure 10.3 illustrates the optimal allocation of labor. The quantities of labor ineach of the two sectors are measured along the horizontal axis. One curve showsFIGURE 10.3Efficient Allocation of Labor between SectorsUnits of output10.3 Types of InefficiencyMarginal productof labor in Sector 1Labor allocatedto Sector 1Marginal productof labor in Sector 2Labor allocatedto Sector 2 3Draw a well labeled graph (similar to graph 10.3 on page 283 from textbook) showing the point of initialequilibrium for each of the 3 scenarios below:1.ii.111.iv.Starting with an initial equilibrium/allocation of workers, show the impact of differentialtechnological progress (specifically, sector 1 experiencing a higher technological progresscompared to sector 2) on the allocation of workers across the sectors. Explain your answer in2-3 sentences.Starting with an initial equilibrium/allocation of workers, show the impact of creation ofUnions in sector 2 with sector 1 remaining as nonunionized on the allocation of workersacross the sectors. Explain your answer in 2-3 sentences.Starting with an initial equilibrium/allocation of workers, show the impact of rise in overallpopulation on the allocation of workers across the sectors. Explain your answer in 2-3sentences.Do all the scenarios above result in inefficiency or dead weight loss to the society? Explainyour answer in 2-3 sentences. No graph is required for this part of the answer.

The extra output that is created when one more unit of labour is employed while keeping all other…

Draw a well labeled graph (similar to graph 10.3 on page 283 from textbook) showing the point of initial equilibrium for each of the 3 scenarios below: 11. 111. iv. Starting with an initial equilibrium/allocation of workers, show the impact of differential technological progress (specifically, sector 1 experiencing a higher technological progress compared to sector 2) on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Starting with an initial equilibrium/allocation of workers, show the impact of creation of Unions in sector 2 with sector 1 remaining as nonunionized on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Starting with an initial equilibrium/allocation of workers, show the impact of rise in overall population on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Do all the scenarios above result in inefficiency or dead weight loss to the society? Explain or in 2-3 sentences. No graph is required for this part of the answer.

Draw a well labeled graph (similar to graph 10.3 on page 283 from textbook) showing the point of initial equilibrium for each of the 3 scenarios below: 11. 111. iv. Starting with an initial equilibrium/allocation of workers, show the impact of differential technological progress (specifically, sector 1 experiencing a higher technological progress compared to sector 2) on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Starting with an initial equilibrium/allocation of workers, show the impact of creation of Unions in sector 2 with sector 1 remaining as nonunionized on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Starting with an initial equilibrium/allocation of workers, show the impact of rise in overall population on the allocation of workers across the sectors. Explain your answer in 2-3 sentences. Do all the scenarios above result in inefficiency or dead weight loss to the society? Explain or in 2-3 sentences. No graph is required for this part of the answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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