Movement of Labor and Capital Between Countries In the short‑run specific‑factors model, examine the impact on a small country following a natural disaster that decreases its population. Assume that land is specific to agriculture, and capital is specific to manufacturing. There are 20 units of labor available, and labor is free to move between the two sectors. a. In the diagram, determine the impact of the decrease in the workforce on manufacturing output and the equilibrium wage. b. Change in manufacturing labor: c. Change in wage:
Movement of Labor and Capital Between Countries In the short‑run specific‑factors model, examine the impact on a small country following a natural disaster that decreases its population. Assume that land is specific to agriculture, and capital is specific to manufacturing. There are 20 units of labor available, and labor is free to move between the two sectors. a. In the diagram, determine the impact of the decrease in the workforce on manufacturing output and the equilibrium wage. b. Change in manufacturing labor: c. Change in wage:
Chapter1: Making Economics Decisions
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Movement of Labor and Capital Between Countries
In the short‑run specific‑factors model, examine the impact on a small country following a natural disaster that decreases its population. Assume that land is specific to agriculture, and capital is specific to manufacturing. There are 20 units of labor available, and labor is free to move between the two sectors.
a. In the diagram, determine the impact of the decrease in the workforce on manufacturing output and the equilibrium wage.
b. Change in manufacturing labor:
c. Change in wage:
Transcribed Image Text:20
19
18
17
P MP
A
16
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13
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8
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4
P MF
M
1
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Manufacturing labor
N CO
LO
Wage
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Step 1
a. The decrease in labour supply will decrease the supply curve for labour from S to S1. Therefore, a fall in labour supply in the manufacturing sector will lead to higher wages and there will be a fall in manufacturing output.
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