Chapter 14: Problem 18

Automation will raise the level of employment if the (LO5) a) output effect is equal to the substitution effect b) output effect is greater than the substitution effect c) substitution effect is greater than the output effect

Short Answer

Expert verified

Automation will raise the level of employment if the output effect is greater than the substitution effect.

Step by step solution

Understand Automation and its Effects on Employment

Automation refers to the use of machines, technology, and processes to perform tasks that were previously done by humans. Automation can affect employment in two ways: through the output effect and the substitution effect. The output effect is the increase in demand for goods and services produced by the automated processes, leading to a higher level of production and a potential increase in employment. The substitution effect is the replacement of human workers with machines, thereby decreasing the demand for human labor and potentially reducing employment.

Analyze Statement a)

The first statement says that automation will raise the level of employment if the output effect is equal to the substitution effect. In this case, the increase in demand for goods and services due to automation would be balanced by the decrease in demand for human labor. This means that there would be no overall change in the level of employment. Hence, this statement is not correct.

Analyze Statement b)

The second statement says that automation will raise the level of employment if the output effect is greater than the substitution effect. In this case, the increase in demand for goods and services is larger than the decrease in demand for human labor resulting from automation. It means that the overall production level would increase, and more human labor would be needed, leading to a higher level of employment. So, this statement is correct.

Analyze Statement c)

The third statement says that automation will raise the level of employment if the substitution effect is greater than the output effect. In this case, the decrease in demand for human labor would be larger than the increase in demand for goods and services. This means that there would be a reduction in the overall level of employment. Hence, this statement is not correct.

Conclusion

Based on the analysis of the given statements, the correct answer is: b) Automation will raise the level of employment if the output effect is greater than the substitution effect.