Question

Suppose a large number of Martians came to earth and volunteered to do all the teaching at universities. Suppose they agreed to do this forever, they do a great job, and they are an overall improvement. Suppose also that the labour market for univeristy professor is perfectly competitive.

a. Would the marginal unvieristy professor who just lost his job be worse off? Explain.

b. Would the intra-marginal unvieristy professor (the one who earns a rent) who just lost his job be worse off? Explain.

c. Would society be better or worse off from the loss of univerisity employment? Explain. d. GDP is essentially the dollar value of all the goods and services produced in a country for a given year. It is often used as a measure of well being for a country. Holding everything else constant, what would the arrival of the Martians do to GDP? What does this tell you about its use as a measure of well being?

Answer 1

a. The marginal university professor who just lost his job will be worse off now because the income will decline and this will lead him to a lower indifference curve. Thus, he becomes worse off.

b. Yes, the intra marginal university professor who just lost his job will be worse off now due to the movement to a lower indifference curve and thus lowering of satisfaction.

c. The society overall will be worse off due to loss of university employment as this reduces overall or total surplus in the society.

d Increase in the population will shift the Production Possibility Frontier of the country outwards. Thus, GDP of the country will increase. Since GDP takes into consideration only income level in the society and thus it cannot be used as a measure of overall well being where factors like poverty, income , educational level, health status of the country also play an important role.