13) ( 14 ) Creative Destruction and the transition from an initial and a new long run equilibrium due to a new technology

a) Suppose there is new technology (e.g. Artificial Intelligence) which increases labor productivity. Assume that in the long run, there are no barriers to entry by new firms. Use the profit rate graph and the labor market graph to show the possible transition from an initial and a new long run equilibrium. Use a flow diagram to give a complete explanation that matches your graphs to explain what happens to the profit rate, the number of firms, employment, unemployment rate and real wages.

b) Given your answer to part a), explain what happens to income inequality in the short run due to technological innovation which increases labor productivity. What happens to income inequality in the long run due to technological innovation which increases labor productivity?