RENTAL PRICE 8. Links between factor markets Consider the markets for factors of production, such as...

 

 

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RENTAL PRICE 8. Links between factor markets Consider the markets for factors of production, such as labor and capital, to produce furniture in the United States before the invention of electric motors. In the late 19th century, commercially successful electric motors became available and enabled furniture and many other goods to be produced more efficiently. Assuming the cost of producing capital goods is unchanged, show how the availability of electric motors affected the market for capital in the United States on the following graph. Market for Capital CAPITAL Supply Demand Demand Supply ? WAGE From the graph, you can deduce that the development of electric motors led the equilibrium rental price of capital in the United States to Now consider the effect this change in the capital market has on the labor market. In particular, think about the effect that the existence of these new electric machines has on workers' productivity. Assuming that labor and capital are used together in the production of furniture, and that the labor supply choice of workers remains the same, illustrate this effect on the labor market in the United States on the following graph. Market for Labor LABOR Supply Demand Demand Supply (?) RENTAL PRICE 8. Links between factor markets Consider the markets for factors of production, such as labor and capital, to produce furniture in the United States before the invention of electric motors. In the late 19th century, commercially successful electric motors became available and enabled furniture and many other goods to be produced more efficiently. Assuming the cost of producing capital goods is unchanged, show how the availability of electric motors affected the market for capital in the United States on the following graph. Market for Capital CAPITAL Supply Demand Demand Supply ? WAGE From the graph, you can deduce that the development of electric motors led the equilibrium rental price of capital in the United States to Now consider the effect this change in the capital market has on the labor market. In particular, think about the effect that the existence of these new electric machines has on workers' productivity. Assuming that labor and capital are used together in the production of furniture, and that the labor supply choice of workers remains the same, illustrate this effect on the labor market in the United States on the following graph. Market for Labor LABOR Supply Demand Demand Supply (?)