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Explain how the following events affect the demand for labor

Economics Dec 17, 2020

Explain how the following events affect the demand for labor.

a. A new education program administered by the company increases labor's marginal product

The demand for labor would_

1. increase

2. remain unchanged

3. decreased

b. The firm completed a new plant with larger space and new machinery

The demand for labor would

1. increase

2. remain unchanged

3. decrease

Expert Solution

Answer for "a": increases

For the first part of the question, the task is to see if there is a shift in the demand for labor or not. Education programs increase the productivity of labor as given in this question. It's reasonable to say that pretty much any company wants to hire a well-trained and well-educated employee. Therefore, we can say that the demand of the labor increases in the first part of the question.

However, if these laborers weren't provided with the new education program then their demand wouldn't change as they would have to be give additional training for any company who decides to hire them later. Thus, the demand for labor will increase due to the increase in the marginal productivity.

Answer for "b": decreases

Technology introduced given by the new machinery in the second part of the question (part b) can act as a substitute for the existing labor. If this is the case, then the laborers will be less attractive to the employers, therefore leading to a decrease in their demand.

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