Skilled or unskilled workers can be used to produce a small toy. Initially, assume that the wages paid to both types of workers are equal. LO3

a. Suppose that electronic equipment is introduced that increases the marginal product of skilled workers (who can use the equipment to produce more toys per hour worked). The marginal products of unskilled workers are unaffected.

Explain, using words and graphs, what happens to the equilibrium wages for the two groups.

b. Suppose that unskilled workers find it worthwhile to acquire skills when the wage differential between skilled and unskilled workers reaches a certain point. Explain what will happen to the supply of unskilled workers, the supply of skilled workers, and the equilibrium wage for the two groups. In particular, what are equilibrium wages for skilled workers relative to unskilled workers after some unskilled workers acquire training?