Incorrect Consider a technological improvement that increases the productivity o
ID: 1140508 • Letter: I
Question
Incorrect Consider a technological improvement that increases the productivity of both capital and labor (i.e. the A in the production function). Use the production model (where capital and labor are treated as constant values) to analyze changes in the equilibrium of the economy. In the labor market the supply shifts to the RIGHT/LEFT/NO SHIFT and the demand shifts to the RIGHT/LEFT/NO SHIFT. As a result the wage will INCREASE/DECREASE/NO CHANGE and employment will INCREASE/DECREASE/NO CHANGE. Pick the right set of answers. Selected Answer: "Right, No Shift, Decrease, Increase"
Explanation / Answer
Right; No shift; Decrease; Increase
Technological improvement increases productivity and thus increases supply of good in the market. When supply increases due to change in factors other than the price of commodity then supply curve shifts. So, supply curve shifts rightwards.
Rightward shift of supply curve decreases price level in the market and thus wages of labor also decreases.
Demand curve does not shift because technological improvement impacts supply not demand.
To increase supply of goods, more workers are required so employment will increase.