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1.In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and Louisiana 1986 was a year of economic decline. Why?
It can deduce that Texas and Louisiana are oil-producing states of United States. So when the price of oil on world markets declined, the real wage of this industry fell in terms of other goods. This might be the reason of economic decline in the two states in 1986.
2。An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depends on labor input as follows:
To analyze the economy’exquisite托福出国s production possibility frontier, consider how the output mix changes as labor is shifted between the two ctors.
a.Graph the production functions for good 1 and good 2.
b.
c.Graph the production possibility frontier. Why is it curved?
The PPF is curved due to declining marginal product of labor in each good. The total篮球兴趣班 labor supply is fixed. So as L1 ris, MPL1 falls; correspondingly, as L2 falls, MPL2 ris. So PP gets steeper as we move down it to the right.
2.The marginal product of labor curves corresponding to the production functions in problem2 are as follows:
a.Suppo that the price of good 2 relative to that of good 1 is 2. Determine graphically the wage rate and the allocation of labor between the two ctors.green king
With the assumption that labor is freely mobile between ctors, it will move from the low-wage ctor to the high-wage ctor until wages are equalized. So in equilibrium, the wage rate is equal to the value of laborlongs’s marginal product.
The abscissa of point of interction illustrated above should be between (20, 30). Since we only have to find out the approximate answer, linear function could be employed.
The labor allocation between the ctors is approximately L1=27 and L2=73. The wage rate is approximately 0.98.
b.Using the graph drawn for problem 2, determine the output of each ctor. Then confirm graphically that the slop of the production possibility frontier at that point equals the relative price.
The relative price is P2/Pmenuitem1=2 and we have got the approximate labor allocation, so we can employ the linear function again to calculate the approximate output of each ctor: Q1=44 and Q2=90.英国人的性格
c.Suppo that the relative price of good 2 falls to 1. Repeat (a) and (b).
The relative decline in the price of good 2 caud labor to be reallocated: labor is drawn out of production of good 2 and enters production of good 1 (Ｌ1=62, L2=38). This also leads to an output adjustment, that is, production of good 2 falls to 68 units and production of good 1 ris to 76 units. And the wage rate is approximately equal to 0.74.
d.Calculate the effects of the price change on the income of the specific factors in ctors 1 and 2.lxp
With the relative price change from P2/P1=2 to P2/P1=1, the price of good 2 has fallen by 50 percent, while the price of good 1 has stayed the same. Wages have fallen too, but by less than the fall in P2 (wages fell approximately 25 percent). Thus, the real wage relative
to P2 actually ris while real wage relative to P1 falls. Hence, to determine the welfare conquence for workers, the information about their consumption shares of good 1 and good 2 is needed.
3.In the text we examined the impacts of increas in the supply of capital and land. But what if the mobile factor, labor, increas in supply?
conductivea．Analyze the qualitative effects of an increa in the supply of labor in the specific factors model, holding the price of both goods constant.
For an economy producing two goods, X an Y, with labor demands reflected by their marginal revenue product curves, there is an initial wage of w1 and an initial labor allocation of Lx=OxA and Ly=OyA. When the supply of labor increas, the right boundary of the diagram illustrated below pushed out to Oy’. The demand for labor in ctor Y is pulled rightward with the boundary. The new interction of the labor demand curves shows that labor expands in both ctors, and therefore output of both X and Y also expand. The relative expansion of output is ambiguous. Wages paid to workers fall.
b．Graph the effect on the equilibrium for the numerical example in problems 2 and 3, given a relative price of 1, when the labor force expands from 100 to 140.
With the law of diminishing returns, the new production possibility frontier is more concave and steeper (flatter) at the ends when total labor supply increas.
