Graphically show the impact on real wage or the real price of capital of each of...

Graphically show the impact on real wage or the real price of capital of each of the following situations in the marginal product model:
a. Improved healthcare policies boost worker productivity
b. Factories go unused (just sit empty) during a recession

Expert Solution

The marginal product model explains that any change in the price level of any product, service, and other things will affect its quantity demanded of such products by the people.

Improved healthcare policies boost worker productivity

Due to improved healthcare policies, labor becomes more productive as they are working with better health than earlier. As the productivity of labor increases, a firm can produce more output units in the market due to which producers demand more labor to grow their business. Hence, the labor demand curve shifts rightward as which in the graph below:

Increased demand for labor increases the wage rate in the economy.

Factories go unused (just sit empty) during a recession

Due to recession, demand for products and services decreases as people have lesser money to spend due to the slowing down of the economy. As a result, factories go unused, and no products and services produced. Therefore, it will affect demand for both labor and capital as factories go unused; demand for both will decrease as shown in the graphs below:

Due to decreased demand, demand curve of both labor and capital shifts leftward, and the wage rate and the real price of capital will decrease in the economy that is shown in the graphs above, respectively.

Rahul Sunny answered 8 months ago

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