Suppose the world price of steel falls substantially. The demand for labor among steel-producing firms in Pennsylvania will increase. The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will increase. The temporary unemployment resulting from such sectoral shifts in the economy is best described as frictional unemployment. True / False.

False; True; True

Explanation:

The fall in the world price, would mean a decline in the revenue for steel-producing firms, while low price of steel would favor those manufacturers that depend on steel as an input for production of automobiles.

Therefore, let us examine how true or false the listed statements in the question are regarding the fall in world price of steel:

Statement 1, which states “the demand for labor among steel-producing firms in Pennsylvania will increase is FALSE. Decline in world price would lead to a drop in revenue for steel-producing firms, this would not likely lead to engaging more workers, as there would be likely layoff of workers or paycuts for workers. Labor among steel-producing firms in Pennsylvania will DECREASE.

Statement 2, which states “The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will increase.” is TRUE. Decline in world price of steel would enable automobile-producing firms to increase their output by obtaining more steel, hence, more workers would be hired.  

Statement 3, which states, “The temporary unemployment resulting from such sectoral shifts in the economy is best described as frictional unemployment” is TRUE. Frictional employment is what occurs when a sector losses workers or workers move to another sector in search of employment as a result of economic situations such as a drop in world price of steel.

answer; normative economics;

answer target market;