Question
Assume that a Cobb-Douglas production function is a good representation of the economy, the substitution effect is stronger than the income effect, and that the
Assume that a Cobb-Douglas production function is a good representation of the economy, the substitution effect is stronger than the income effect, and that the economy was initially at equilibrium. Suppose a zombie outbreak spreads throughout the United States. Although the outbreak is ultimately eradicated, the United States nevertheless suffers a severe drop in population (and corresponding decrease in the labor force) with no reduction in machinery and equipment. If the real wage is completely flexible, what will happen to the equilibrium output level?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started