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Businesses express a concern that the Norwegian PPE tariff policy will boost labor demand and therefore increase real wages. Assume that there are two
Businesses express a concern that the Norwegian PPE tariff policy will boost labor demand and therefore increase real wages. Assume that there are two inputs into production, labor and capital, and two sectors, PPE and other goods. PPE production is relatively labor intensive. a) Evaluate whether this is a valid concern in the short run (labor is mobile but capital is not). b) Evaluate whether this is a valid concern in the long run (both labor and capital is mobile). c) Explain why/why not the short- and long-run response may differ. You should explain the economic mechanisms and intuition with words and diagrams.
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