1. [Multiple Choice Questions (5 points each, 35 points in total)] Answer the fo
ID: 1137875 • Letter: 1
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1. [Multiple Choice Questions (5 points each, 35 points in total)] Answer the following questions. 1.1 What is the marginal product of labor? 1.5 Consider the Specific-Factors model in 1.4. The increase in the price of the agricultural good benefits... (a) owners of agricultural capital only (b) owners of manufacturing capital only (c) owners of agricultural and manufacturing (a) Labor required to produce one unit of output. (b) Labor required to increase the product's price one unit (c) Additional increase in price when one unit of capitals. labor is added (d) Additional increase in output when one unit of 1.6 Consider the Specific-Factors model in 1.4. The increase in the price of the agricultural good (a) raises nominal wages and real wages. (b) raises nominal wages for sure but the impact labor is added 1.2 In the Specific-Factors Model, marginal product of labor in an industry islabor increases in that industry (a) increasing as (b) decreasing as (c) constant even if on real wages is ambiguous. (c) raises real wages for sure but the impact on nominal wages is ambiguous. 1.7 Please verbally explain the logic behind the result you answered in the previous question 1.6. You may use an equation if it makes it easier to explain. 1.3 In the Ricardian model, marginal product of labor in an industry is industry (a) increasing as (b) decreasing as (c) constant even if labor increases in that 1.4 Consider a Specific-Factors model with two industries, the manufacturing and the agriculture industries. An increase in the price of the agricultural good due to trade leads to (a) labor reallocation from the manufacturing to the agriculture industry (b) labor reallocation from the agriculture to the manufacturing industry (c) no labor reallocationExplanation / Answer
1. d. An additional increase in output when one unit of labor is added
2. b. decreases as. Specific factors model is a variant of the Ricardian model
3. b. is decreasing as labor increases in that industry.
4. a. Reallocation of labor from manufacturing industry to the agricultural industry. This is because this increase in wages also leads to an increase in real wages in the agricultural industry. However, eventually, when there is an excess supply of labor in the agricultural sector, the wages fall down eventually.
5. a. owners of agricultural capital only. This is because this price increase will lead to increase in the profitability of the agricultural capital owners when the total revenue rises.
6. b. raises nominal wages for sure but the impact on real wages is ambiguous.
The nominal wages increase for sure because increased prices would lead to higher "Value of Marginal Productivity of Labor" and thus the wages of the labors will also increase accordingly. However, the increase in real wages is ambiguous because there might be a rise in prices of other commodities that are used by the employees.
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