Ch. 5 Problems

Ch. 5 Problems - Chapter 5 Problems reviewed in class 2, 3...

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Chapter 5 Problems reviewed in class 2, 3 and 4
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Problem 2 With reference to Figures 5.2 and 5.3, a 10% increase in the price of Food would shift the VMPL up by 10% in Food and suppose that a 10% increase in supply of land would (at constant prices) shift the VMPL rightward by 10%. Do these have equivalent effects on the wage rate? Which kind of change would the workers prefer? What about capitalists?
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Problem 2 Answer Both an increase in the price of food and an increase in the quantity of land will raise wages. Which raises wages by a greater amount depends upon the slopes of the VMPL curves. Both will also reduce the return to capital. If both changes cause an equal increase in wages, then the second will be preferred by workers, as prices will not increase as they do in the first case. A similar story can be told for capitalists. An increase in the price of food leads to landowners unambiguously gaining, whereas an increase in the amount of land may lead to landowners gaining or losing, depending on the relative magnitude of improvement in marginal productivity of labor and additional labor hired in food.
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This document was uploaded on 02/10/2012.

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Ch. 5 Problems - Chapter 5 Problems reviewed in class 2, 3...

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