Answered: he graphs below depict the initial…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The graphs below depict the initial market for labor (on the left) and the macroeconomic production function (on the right). You will use these graphs to identify the effect of an increase in the number of available workers on employment, Potential GDP, and per-worker productivity.

Suppose that a substantial increase in labor force participation increases the supply of labor by 40,000 workers at every value of the real wage. (1) Identify the effect of this event on equilibrium employment in the market for labor, and identify the specific new equilibrium level of employment. (2) Identify the effect of this event on Potential GDP, and identify the specific new level of Potential GDP. (3) Finally, identify the effect of this event on per-worker productivity, and identify the specific new level of per-worker productivity.

You should embed a graph that clearly depicts (1) the correct supply shift in the market for labor, (2) the new equilibrium real wage, and (3) the new equilibrium quantity of labor after the increase in labor force participation.

Real Wage
$35
$30
$25
$20
$15
$10
$5
20
40
60
80
Supply
Demand
100 120
140
Quantity of Employment
(in thousands of workers)
Potential GDP
(in millions of dollars)
$70
$60
$50
$40
$30
$20
$10
20
40
60
80
30
100
120
140
Quantity of Employment
(in thousands of workers)

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