CH. 3 EC302
A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the
production function.
The table below represents Freedonia's macroeconomic data for Year 1 and Year 2. Year 1: Y = 2000 K = 1700 N = 70, Year 2: Y = 2100 N =1785 N =75. Suppose that the production function is given by Y = AK^(0.25)N^(0.75). Between Year 1 and Year 2, total factor productivity of Freedonia's economy increased by
-1.5%
Suppose the economy's production function is Y=A K^(0.3)N^(0.7) . If K = 2000, N = 100, and A = 1, then Y = 246. If K rises by 10%, and A and N are unchanged, by how much does Y increase?
3%
Suppose the marginal product of labor is: MPN = 200-0.5N. where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium quantity of employment?
380
The Widget Company has the following production function. Number of worker:1,2,3,4,5, respective to numbers fo cases prodcued: 0,9,17,24,30,35. If widgets sell for $6 each and the wage rate is $33, how many workers will the company hire?
4
What is a production function?
A mathematical relationship relating the amount of output produced to the quantities of capital and labor used.
Which of the following factors can cause a nation's production function to shift over time?
An improvement in technology
Which of the following will cause an increase in the demand for labor?
An increase in the productivity of workers.
Suppose that the government levies a lump-sum tax on workers. Which of the following best explains the effect on the supply of labor?
A lump-sum tax has only an income effect, so increasing the tax will cause the supply of labor to increase.
An adverse oil-price shock reduces labor demand. What happens to current employment and the real wage rate?
Both employment and the real wage rate would decrease.
How would each of the following affect Helena Handbasket's supply of labor?A temporary income tax surcharge raises the percentage of her income that she must pay in taxes, for the current year only. (Taxes are proportional to income in Helena's country.)
Helena is likely to supply less labor because short-run substitution effects are likely to exceed income effects.
A sharp increase in stock prices makes people much wealthier. If the main effect of this increased wealth is felt on labor supply, what happens to current employment and the real wage rate?
Employment would decrease and the real wage would increase.
The government announces a tax increase on workers' wages to take effect in the future. What happens to current employment and the real wage rate?
Employment would increase and the real wage would decrease.
How would each of the following affect Helena Handbasket's supply of labor?The value of Helena's home triples in an unexpectedly hot real estate market.
Helena will supply less labor due to the income effect.
How would each of the following affect Helena Handbasket's supply of labor?Originally an unskilled worker, Helena acquires skills that give her access to a job with a higher hourly wage. (Assume that her preferences about leisure are not affected by the change in jobs.)
The effect on Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case.
What do you have to know besides an economy's production function to know how much output the economy can produce?
The quantities of capital and labor that the economy has.
The marginal product of capital is the increase in
output from a one-unit increase in capital.
An invention that speeds up the Internet is an example of
a supply shock.
If Jeff's wage rate rises, he decides to work fewer hours. From this, we can infer that
for Jeff, the substitution effect is less than the income effect.
One reason that firms hire labor at the point where w = MPN is
if w > MPN, the cost (w) of hiring additional workers exceeds the benefits (MPN) of hiring them, so they should hire fewer workers.
A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage, so labor supply is ________ with a permanent wage increase than for a temporary wage increase.
larger; less
A decrease in the real wage would result in a
movement along the labor demand curve, causing an increase in the number of workers hired by the firm.
What are the primary factors that cause the aggregate labor supply curve to shift?
the expected future real wage, wealth, the size of the population, and factors that influence labor force participation
What two variables are related by the aggregate labor supply curve?
the quantity of labor supplied and the real wage
The fact that the production function relating output to capital becomes flatter as we move from left to right means that
there is diminishing marginal productivity of labor.
