Use the accompanying table for Neon and Zeon to answer the...

Use the accompanying table for Neon and Zeon to answer the questions that follow. Assume that the wage rate shown equals hourly output and income and that the accumulated output and income are the sum of the marginal revenue products (MRPs) of each worker. a. Which country has the greater stock of capital and technological prowess? How can you tell? b. Suppose the equilibrium wage rate is $$ 19$$ in Neon and S7 in Zeon. What is the domestic output $(=$ domestic income) in the two countries? c. Assuming zero migration costs and initial wage rates of S19 in Neon and $$ 7$$ in Zeon, how many workers will move to Neon? Why will not more than that number of workers move to Neon? d. After the move of workers, what will the equilibrium wage rate be in each country? What will the domestic output be after the migration? What is the amount of the combined gain in domestic output produced by the migration? Which country will gain output; which will lose output? How will the income of native-born workers be affected in each country?

Use the accompanying table for Neon and Zeon to answer the questions that follow. Assume that the wage rate shown equals hourly output and income and that the accumulated output and income are the sum of the marginal revenue products (MRPs) of each worker.
a. Which country has the greater stock of capital and technological prowess? How can you tell?
b. Suppose the equilibrium wage rate is $$ 19$$ in Neon and
S7 in Zeon. What is the domestic output $(=$ domestic income) in the two countries?
c. Assuming zero migration costs and initial wage rates of
S19 in Neon and $$ 7$$ in Zeon, how many workers will move to Neon? Why will not more than that number of workers move to Neon?
d. After the move of workers, what will the equilibrium wage rate be in each country? What will the domestic output be after the migration? What is the amount of the combined gain in domestic output produced by the migration? Which country will gain output; which will lose output? How will the income of native-born workers be affected in each country?

Key Concepts

Income Distribution and Gains from Migration

This concept examines how the movement of workers between countries affects the overall income levels of both host and source countries. Migration can lead to a rise in total output due to better allocation of resources, though it may also result in varied impacts on native-born wages. Generally, the country gaining workers experiences an increase in total output and may see changes in wage rates due to altered labor supply, while the country losing workers might experience a decline in output or upward pressure on wages for the remaining workers.

Domestic Output as a Sum of MRPs

Domestic output in this context is viewed as the sum of the marginal revenue products of all workers. This approach connects the individual productivity of workers to the overall income or output of the country. It helps to explain how shifts in labor allocation, such as migration, can potentially increase total production and income in an economy by reallocating workers to settings where they are more productive.

Labor Market Equilibrium and Migration

This concept involves balancing the supply and demand for labor, where equilibrium is achieved when the wage rate equals the marginal product of labor. Wage differentials between countries create incentives for migration, as workers tend to move from lower-wage countries to higher-wage countries until the wages equalize. This migration process is subject to adjustment dynamics and typically stops when net wage advantages disappear, ensuring no further incentive for movement.

Capital Stock and Technological Prowess

This concept refers to the overall level and quality of physical capital and technology available in a country. A higher stock of capital and superior technology means that workers are typically more productive, resulting in higher marginal revenue products and wages. It represents how well-equipped a nation is to perform production, and differences in these factors can indicate comparative advantages between countries.

Marginal Revenue Product (MRP) and Wage Rate

Marginal revenue product is the additional revenue generated by employing one more unit of labor. Under the assumption that the wage rate equals the marginal revenue product, the wage rate reflects the labor’s productivity. This concept is central to understanding how employment, income, and output levels are determined in an economy, and it allows for a direct link between individual worker productivity and total national output or income.

Transcript

00:01 In this question, we are looking at two countries and their workers and then the wage rate for those amount of workers and their output or their income, domestic output and income.

00:13 So we have country a in the left of each column, and i have this in red.

00:17 And then on the other side, we have b shown to the right of that.

00:21 So again, same thing for output and income.

00:23 And we have four parts that we're looking at here for finding specific details on the chart.

00:28 So we have this first part is asking us which country has the higher stock of capital.

00:35 Another way to put this is which country has more technological advancement.

00:40 And now it's not immediately obvious just looking at this, but we can kind of piece it together when we think about it logically.

00:46 So when we think of technological advancement or capital, we can think of productivity.

00:52 And looking at one worker, we can see we're going to ignore wage rate for now, but looking at the output, the output per that one worker is 21 for country a and 15 for country b.

01:03 So that one worker is more productive in country a than b.

01:06 And that's our first sign that this is the technologically advanced country.

01:10 And we can just check down the list here in every single row, country a beats country b with the same amount of workers.

01:17 So it's more efficient.

01:18 Therefore, we can declare the more technologically advanced country or this country with the higher stock.

01:25 Now, getting into the details with the wage rate, let's look at the output when the wage rate in the first country is 19 and the second is 7.

01:32 So we have country 1 with 19.

01:36 So we're going to go to the wage rate and look for 19, which is right here.

01:41 And now we have the second, which is 7.

01:45 So column b and then we have 7 here.

01:50 And the output is we just have to line it up in the same rows.

01:53 So country a has 19 and the output when there are two workers at 19 for the wage.

01:59 Rate is going to be 40 for your output.

02:02 On the other hand, we have seven here, and that is going to be associated with 55.

02:08 So that's going to be the output.

02:10 And now next we have how many workers will move and why know more than that number.

02:15 So this is now introducing immigration into the equation.

02:19 And immigration is going to occur because, as you can see, we have a difference in wage rates.

02:22 And people are going to notice this.

02:24 They're going to say, i'm going to move and get more money because this country has more money.

02:29 Offer for me for my wages.

02:32 So what's going to happen here, we're going to see we have people from this country, country b moving.

02:38 So we're going to lose workers.

02:42 And let's do three here.

02:44 And now they're at 13.

02:45 And i went from 5 to 2.

02:46 So that's the difference of 3.

02:48 On the other hand, we're going to do the same thing because these three workers are now part of country a.

02:52 So now we just go down 3.

02:55 And what we can see here is we're at 13 for both...

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