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(Solved) Assignment on Business Economics

   

Added on  2021-05-31

7 Pages968 Words20 Views
Running Head: BUSINESS ECONOMICS Business EconomicsName of the StudentName of the UniversityCourse ID

BUSINESS ECONOMICS1Table of ContentsPart B...............................................................................................................................................2Part C...............................................................................................................................................3Part C...............................................................................................................................................4Reference list...................................................................................................................................6

BUSINESS ECONOMICS2Part BLabor is an important input in the construction industry. An increase in labor cost leads toa significant increase in cost of production. Construction companies now face a higher cost forevery unit of production. The higher input cost results in a decrease in supply. As the supplydecreases, given the demand there arises a shortage in the market (Baumol and Blinder 2015).The shortage leads to an increase in equilibrium price while a decrease is available number ofbuildings. This is explained in the figure below. Figure 1: Effect of an increase in labor cost(Source: as created by Author)The simple demand supply model is used to explain the effect of rising labor cost in theconstruction industry. The demand and supply condition in the market is represented by thecurve DD and SS respectively. At the existing demand and supply equilibrium occurs at thepoint E. The demand and supply matches at this point results in an equilibrium price of P* andequilibrium number of building is B*. Now, an increase in labor cost interrupts construction byraising cost of production (McKenzie and Lee 2016). As a result, the supply curve shifts to the

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