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Extra info for Advanced Macroeconomics Solutions
By perfect substitutability, routine labour and computers can be treated as a single aggregate, ‘routine task’. 15) drt = ∂ 2c ∂ 2c ws (wˆ s − ρ) ˆ + wu (wˆ u − ρ) ˆ with ρˆ < 0 < wˆ u < wˆ s ∂ρ∂ws ∂ρ∂wu By complementarity between skilled labour and the routine task (∂ 2 c/∂ρ∂ws < 0), there may be, locally at least, a positive relation between rt and ρ, contrary to the above-mentioned presumption. Our argument does not show, of course, that the Job Polarization theory is incorrect: it shows that in significant contexts, in which the economic theorist compares long-run equilibria which are different in more than one input price, the conventional wisdom concerning downward-sloping input demand curves (per unit of output) should not be accepted as a sound guide to the comparative statics, but should be explicitly tested case by case.
We confirm, of course, the main findings concerning input use in relation to input price, when the output price adjusts in order to restore zero-net-profit conditions. However, the output price is not the only possible compensating variable in the long-run adjustment and we extend the analysis to all possible relative price changes. 5, we provide a link between the structure of relative prices and each price expressed in a general num´eraire and clarify the meaning of an FIE relation between input use and the input’s own price (or between output and price), comparing it to a conventional input demand (or output supply) curve.
G. , 1995, pp. 340–41); far less attention, if any, is devoted to other shocks, which modify the long-run equilibrium of the individual firm, independently of any effect on the number of the firms. It is with just such other shocks that we shall be particularly concerned. 18 Taking seriously the tendency to zero net profits The concept of a full industry equilibrium which will be developed in this book needs some preliminary discussion. Knut Wicksell, in his Lectures on Political Economy, called ‘Full Equilibrium’ for a firm a situation in which the firm operates at an optimum scale minimizing its average cost and selling its output at a price equal to this minimum average and to marginal cost (Wicksell, 1934 , p.
Advanced Macroeconomics Solutions by Romer