Economics question, please help, :)?

J

jalg_gali

New member
Use the neoclassical theory of distribution to predict the impact on the real wage and the real rental price of capital of each of the following events.

(1). a wave of immigration increases the labor force
(2). an earthquake destroys some of the capital stock
(3). a technological advance improves the production function.
 
(1) a wave of immigration would increase the labour supply, causing the real wage to decrease. As employers use more labour, they'll use less capital, which means the rental price of capital will increase as demand for capital decreases.

(2) A destruction of capital stock reduces the capital supply, which will increase the rental rate of capital. I THINK that this will cause producers to shift over to labour, which will increase demand for labour and cause the real wage to increase as well - but don't trust me on that.

(3) Both the rental price and real wage will increase, because more can be produced with less capital and labour.
 
Back
Top