Labour SUpplv I ___________________________________ | Average product of Real wage too high and markup too low; ii ms raise price; | labour, 1 and given demand, output falls " A ' \"(IF = w\" Pricesetting CUI'VE demand, output rises Average product of labour, Real wage. W/P Employment, whole economy, N Employed 3. A Nash Equilibrium? In this model, the unemployed are no different from the employed (except for their bad luck). Imagine you are an employer, and one of the unemployed comes to you and promises to work at the same effort level as your current workers but at slightly lower wage. 1. How would you reply? 2. Does your reply help explain why unemployment must exist in a Nash equilibrium? Tutorial uestions 1. Shifts in the Wage-Setting Curve (a). Referring back to Unit 6 (the Wage-Setting lecture), provide a brief explanation of the shift in the wage-setting curve for each row in the table below, using a diagram to show the best response function and the wage setting curve. For the second and third rows, give an example from a real-world workplace. (b). Explain why a rise in the unemployment rate shifts the best response function but not the wage-setting curve. Change Shifts the wage-setting curve Decrease in unemployment benefit Down A monitoring device to detect shirking Down A decrease in the disutility of working Down The Price-Setting Curve In your own words and using a diagram like Figure 9.8, explain why prices would fall and employment would increase if the economy were at point C in Figure 9.10 (the opposite of what happens at point A). Isa-prot curves Prot per unit output Wage per unit output Price, p: dollars .- Wage Demand curve {glven economy-wide demand) q. Quantity. q; Employment, n. given a production function where APL = A = 1 Production function: q = n