Answer to Question #322959 in Microeconomics for MMM

Question

Show the effect of each of the following events on the market for labor in the computer

manufacturing industry.

a. The federal government buys personal computers for all Australian university students.

b. More university students study engineering and computer science.

c. Computer firms build new manufacturing plants.

Answer 1

Suppose the federal government buys computers for Australian students. In that case, the demand for computers will increase, which will increase the prices, and thus the marginal value product of the computer producers will increase. The figure below shows the demand curve shift from D₁ to D₂, an increase in wages from W₁ to W₂, and the labor quantity increase from L₁ to L₂.

 If more university students study computer science and engineering, there will be an increase in the labor supply in the computer industry. Therefore there will be a shift in the supply curve from S₁ to S₂, as shown below. The wages will decrease from W₁ to W₂, and the labor quantity will increase from L₁ to L₂.

If the computer firms build new manufacturing plants, the marginal product of labor and its value will increase. Thus the labor demand curve will shift from D₁ to D₂. wages will increase from W₁ to W₂, and quantity of labor will increase from L₁ to L₂