Question A.1: Equilibrium in the Labour Market (30 Marks) Consider an economy in the short run, which has the following aggregate production function: Y ' = K (AN) + L (AN)B Y stands for output, K stands for the capital stock, N stands for the number of people employed, L stands for the quantity of land used in production. A stands for a measure of labour efficiency, while , and y are parameters whose values are between 0 and 1. All workers are identical and are paid the same real wage w. (a) What is the expression for labor demand No in this economy? = (b) If the labor supply curve is given by Ns w, what are the equilibrium real wage w* and equilibrium employment N* in this economy? Represent graphically the equilibrium in the labor market. (c) Now suppose that more land becomes available for production purposes. As a result, the value of L in the economy increases, now being L' > L. Represent graphically the changes that take place in the labor market. How are the equilibrium real wage and the employment level affected? (d) Assume that A = 1, K2.52 and L = 4. Moreover, a = 0.75, = 0.25 and y = 0.5. Compute the numerical values for the equilibrium real wage, the equilibrium employment, the level of output produced in the economy and the associated labor productivity.