MAC06 Experiments

This class was devoted to the assignment that was given earlier. We show that when you have FIXED proportion production functions (NOT Cobb-Douglass) then there can be surplus labor. No amount of wage adjustment can eliminate the surplus. So unemployment can be generated by technological reasons. In such situations, wage will go to the minimum possible, which is exactly the subsistence wage.

However, this is NOT the Keynesian situation, because economy was NOT at full capacity, with maximum production, and no room left to hire additional labor. In fact there was a lot of excess capacity -- labor wanted to work, landlords had land to enable hiring, products, if produced, would have been demanded. But the HIDDEN demand which the laborers had was NOT effective -- the laborers had no money to SHOW their demand to the market. If the demand had been visible, then the factories would have been used to produce and the laborers would have been hired. If they had money, they would have been able to purchase the goods produced. But the POTENTIAL DEMAND that the laborers had (which was not backed by money) could not be seen by the landlords, which is why it was NOT EFFECTIVE. This will be explained in the next lecture. READ the posts and links below to PREPARE for understanding the next lecture.

Final Exam Question: Solve the questions in the exercises attached below, relating to how to compute NASH EQUILIBRIUM in the games discussed.