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Question
Macroeconomics
Posted 7 months ago
Technological progress has resulted in the change shown in this graph.
Quantity of Labor
What happens to employment and wages in the market for labor based on the graph shown here?
Choose 1 answer:
(A) employment decreases; wages don't change
(B) employment increases; wages increase
(C) employment doesn't change; wages increase
(D) employment decreases; wages decrease
(E) employment increases; wages decrease
Related content
Shifts in the demand for labor
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Answer from Sia
Posted 7 months ago
Solution
a
Interpretation of MPL and APL Curves: The Marginal Product of Labor (MPL) represents the additional output produced by an additional unit of labor. The Average Product of Labor (APL) is the average output produced per unit of labor. Technological progress typically shifts the MPL curve upwards and to the right, indicating that each worker is more productive
b
Impact on Employment and Wages: When the MPL curve shifts to MPL₂, it indicates that workers have become more productive due to technological progress. This increased productivity makes workers more valuable to employers, which can lead to an increase in both the demand for labor (employment) and the wage rate, as employers are willing to pay more for the additional output each worker can now produce
c
Analysis of the Graph: Since MPL₂ is above MPL₁, this suggests that for any given quantity of labor, the marginal product is higher after technological progress. This would likely lead to an increase in the demand for labor, as firms want to employ more workers to capitalize on the higher productivity. As a result, both employment and wages would increase
Answer
(B) employment increases; wages increase
Key Concept
Technological Progress in Labor Market
Explanation
Technological progress typically increases the productivity of labor, leading to an upward shift in the MPL curve, which can result in higher employment and wages as firms demand more of the now more productive labor.
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