Businesses express a concern that the Norwegian PPE tariff policy will boost labor demand and therefore...

 

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Businesses express a concern that the Norwegian PPE tariff policy will boost labor demand and therefore increase real wages. Assume that • there are two inputs into production, labor and capital, and two sectors, PPE and other goods. • PPE production is relatively labor intensive. a) Evaluate whether this is a valid concern in the short run (labor is mobile but capital is not). b) Evaluate whether this is a valid concern in the long run (both labor and capital is mobile). c) Explain why/why not the short- and long-run response may differ. You should explain the economic mechanisms and intuition with words and diagrams. Businesses express a concern that the Norwegian PPE tariff policy will boost labor demand and therefore increase real wages. Assume that • there are two inputs into production, labor and capital, and two sectors, PPE and other goods. • PPE production is relatively labor intensive. a) Evaluate whether this is a valid concern in the short run (labor is mobile but capital is not). b) Evaluate whether this is a valid concern in the long run (both labor and capital is mobile). c) Explain why/why not the short- and long-run response may differ. You should explain the economic mechanisms and intuition with words and diagrams.

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ANSWER a In the short run this is a valid concern because the tariff policy will likely boost labor ... View the full answer