Explain why employment may rise or fall in response to an increase in total factor productivity....

Explain why employment may rise or fall in response to an increase in total factor productivity.

An increase in total factor productivity causes the PPF to become steeper at any given quantity of leisure but also to shift down, and the relative magnitudes of these shifts are unknown.

An increase in total factor productivity causes the PPF to become flatter at any given quantity of leisure but also to shift up, and the relative magnitudes of these shifts are unknown.

There are opposing income and substitution effects: the substitution effect is for hours worked to decrease, and the income effect is for hours worked to increase.

There are opposing income and substitution effects: the substitution effect is for hours worked to increase, and the income effect is for hours worked to decrease.

Solutions

Expert Solution

A) An increase in total factor productivity causes the PPF to become steeper at any given quantity of leisure but also to shift down and the relative magnitude of these shifts are unknown

Employment may rise or falling response to an increase in total factor productivity because when cost increases PPF become more steeper at any given quantity hence its shift to down.

Rahul Sunny answered 1 year ago

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