In a small, isolated community in the far north the only source of fuel for heat
ID: 233608 • Letter: I
Question
In a small, isolated community in the far north the only source of fuel for heating and cooking is wood. The community uses, on average. 4 cords of wood per day. Workers make $20/day in this community. The best technology available is handsaws and axes, with which one person can fell, cut and split 1/2 cord of wood per day. Thus, there are 8 people employed in woodcutting. A well intentioned do-gooder air drops two solar powered chainsaws into the community with which one person can cut 2 cords of wood per day. What would the price of a cord of wood be; before and after the new technology? What would happen to people's 'cost of living'? What would happen to the consumption of wood? Explain your reasoning. What happens to employment in the wood cutting industry? Be specific. What will happen to employment in the community? Consider the immediate impact and over a period of time. Explain your reasoning. In general, how do you think the rapid changes in technology and artificial intelligence we see happening today affect the number, type and pay of jobs?Explanation / Answer
Society needs 4wood cord per day.
Without technology, a worker cuts 1/2 wood perday. Hence to cut 4 wood cord there are 8 people employed. That is 8 people would cut 8*(1/2) = 4 cords per day. Hence the total expense for a worker= 20*8 = 160$.
The cost of 4 cords should be at least 160$.
The cost of 1 cord = 160/4=40$.
With technology, a worker is able to cut 2 cords per day. Hence in order to produce 4 cords it'll take only 4/2= 2 workers per day. Hence the expense now = 2*20= 40$.
The cost of 4 cord should at least be 40$ (assuming no profit is being earned)
Hence the cost of a cord = 40/4= 10$.
(b)
People cost of living can be measured by many index. Assuming that society derives same utility in both the scenario. Konus true cost of index = ratio of consumer's cost function with different prices.
= 10/40 = 0.25
People's cost of living will decrease.
(C)
Since in the later case, the price of technology decreases hence by the demand-supply law in economics the demand will increase hence the consumption would increase. Or to simply put, there will be more demand for chepaer product.
(d)
As can be seen in the calculations itself the employment in the wood industry would decrease. Earlier to produce 4 cords it took 8 workers where as with the technology in consideration it took only 2 workers. This is referred to as technological unemployment.
(e)
The immediate effect of technology would be sheer unemployment in the society. However, in a long term that will also create few jobs and a different market. How? With any technology there comes a maintenance cost. Hence, over the period there will be a market for the maintenance of the technology, operation of the technology. Etc.
(f)
With the invent of technology and artificial intelligence many process are getting automaticized which leads to technological unemployment. In today's time, however, technology is creating jobs as well. The focus has been changed from doing the work by oneself to creating / coding the work for the machines to be done. The low pay scale salaries have been reduced greatly and high payscale jobs has increased. The effect is very visible in technology sector. Bamglore has become India's largest technology hub.