Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![(a) Consider the production function Y = [(ALL)P +(AH H)P]/P, where
Y is output, L is low-skilled labour, H is high-skilled labour, and
AL and AH measure the productivity of the two types of labour.
Assuming that labour markets are perfectly competitive, derive the
wage for high-skilled labour, and discuss how it varies with L and H.
How is this related to Q-complementarity between L and H?
(b) Derive the ratio of high-skilled wages to low-skilled wagesw = WH/WL.
How does an increase in AH affect w? Does it matter if L and H
are gross complements or substitutes? What do Katz and Murphy
(1992) conclude about this issue empirically, and how?
(c) Explain what Tinbergen's "Race Between Education and Technol-
ogy" is, and how it is related to your previous answers.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7686321c-dfa2-4dd5-977c-dd58c3cfde24%2Fa14e270e-c551-43e9-8180-37c84f40c98d%2Fqqcghsk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(a) Consider the production function Y = [(ALL)P +(AH H)P]/P, where
Y is output, L is low-skilled labour, H is high-skilled labour, and
AL and AH measure the productivity of the two types of labour.
Assuming that labour markets are perfectly competitive, derive the
wage for high-skilled labour, and discuss how it varies with L and H.
How is this related to Q-complementarity between L and H?
(b) Derive the ratio of high-skilled wages to low-skilled wagesw = WH/WL.
How does an increase in AH affect w? Does it matter if L and H
are gross complements or substitutes? What do Katz and Murphy
(1992) conclude about this issue empirically, and how?
(c) Explain what Tinbergen's "Race Between Education and Technol-
ogy" is, and how it is related to your previous answers.
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Step 1: Define Production Function
VIEWStep 2: Explain the Deriving Wage for High-Skilled Labor (WH)
VIEWStep 3: Explain the matter if L and H are gross complements or substitutes
VIEWStep 4: Explain the Tinbergen's "Race Between Education and Technology & how it is related to the topic
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