DSE-2010,macro

[sonudelhi]

sir plz explain this question....

Consider an economy with an aggregate production function Y=aK+bL,a,b>0. K is fixed in short run.Perfectly compititive producers take the nominal wage W and price level P as given and employ labour as to maximize profits.this generates the labour demand shedule. the labour supply shedule is Ls=-y+d W/p where y,d>0. Producers and workers have perfect information about P and W.
23.The labour market will clear iff
a.  b>y/d
b.  b<y/d
c.  b>d/y
d.  b<d/y
24.Assume that condition in previous question holds and W is fixed.the short run AS will look like


25.If there is one shot increase in fixed stock of K,then short run AS will
a.shift up
b shift down
c.shift to the left
d.shift to right

26.in there is one shot increase in fixed W then AS will
a shift up
b.shift down
c.shift to left
d shift to right

[sonudelhi]

plz explain this question.....amit sir

[sonudelhi]

sir plz explain these questions

[DEEPIKA]

hi..
question 1)
Pls equate MRPL = W for firms profit max.
P * MPL = W
P*beta = W
MPL would be Marginal productivity.
 sub that W in Ls and make sure its greater than 0.

2) get the W accordingly and get Ls from it then sub into Y

then solve for the remaining questions.
Keep in mind that Y would be on horizontal axis so increase in Y would make the graph move right for constant P and increase in P would move graph up for constant Y

[ritu]

sonu for 24,labor mkt to be cleared its necessery that labor supply nd dd intercect...in this case labor dd curve is horizontal....option a is required to ensure that ld &ls intersect...
.
in question 25.....i am convinced that As wud be vertical for high prices and downward sloping for mid prices but why is it vertical for low prices.....????????

[ritu]

@ deepika ...can u explain why is as curve shaped so?

[DEEPIKA]

I think the As curve would be in the form
Y = alpha*K  -beta*gama + beta*delta*W/P

My intuition was like first 2 options are incorrect as for high values..u get a constant Y which should be vertical as its plotted on x axis.
For mid values slop would be negative.. dy/dx

I concluded from above that C is right as D says positve slope. and convinced myself that for low values of p u again get a constant Y.

sometimes you go according to options and you will be right...
Even i am not sure..
BTW would you care for my other post! regarding Q 42 2010 DSE.
 

[s]

i think that for low values of P,Y cant take very large values coz in the short run there are production constraints..so Y can never exceed a certain threshold level

[sonudelhi]

thanks so much deepika and ritu......