Question

in each of the following scenario use 2 diagram for the market of cell phones in US to find the effects on their wage employment and real GDPin 2017 a) consumers are buying more cell phones made in US b)workers decided to retire earlier from the cell phones sector c) new technology bought by firms in the cell phones industry d) a decrease of employment tax for firms producing cell phones

Answer 1

In each labor market graph, wage rate (P) and employment (Q) are measured vertically and horizontally respectively. D0 and S0 are initial labor demand and supply curves, intersecting at point A with initial wage rate P0 and employment Q0.

In each AD-AS graph, price level (P) and real GDP (Y) are measured vertically and horizontally respectively. AD0 and SRAS0 are initial aggregate demand and short run labor supply curves intersecting at point A with initial price level P0 and real GDP Y0.

(a)

Higher output demand will increase labor demand, shifting D0 rightward, intersecting S0 at point B with higher wage rate P1 and higher employment Q1.

Higher consumption of phones will increase aggregate demand, shifting AD0 rightward, intersecting SRAS0 at point B with higher price level P1 and higher real GDP Y1.

(b)

If workers decide to retire early, labor supply falls, shifting S0 leftward, intersecting D0 at point B with higher wage rate P1 and lower employment Q1.

Lower labor supply will decrease aggregate supply, shifting SRAS0 leftward, intersecting AD0 at point B with higher price level P1 and lower real GDP Y1.

(c)

New technology will increase labor productivity, increasing demand for labor, shifting D0 rightward, intersecting S0 at point B with higher wage rate P1 and higher employment Q1.

Improved technology will increase aggregate supply, shifting SRAS0 rightward, intersecting AD0 at point B with lower price level P1 and higher real GDP Y1.

(d)

Decrease in employment tax will lead to improved profitability, increasing demand for labor, shifting D0 rightward, intersecting S0 at point B with higher wage rate P1 and higher employment Q1.

higher profitability will increase aggregate supply, shifting SRAS0 rightward, intersecting AD0 at point B with lower price level P1 and higher real GDP Y1.