<p>If the technology improves how does the price of labour and capital change. We take the neo-classical assumption that demand for each factor depends on it's marginal productivity, and demand and supply are in balance. The exact change should depend on the production function, right? So how can we say what will happen. </p>

CC BY-SA 3.0
2018-02-06T17:49:05.417Z
This is way too general, but if you have a production function $ A \cdot F(K, L) $ and the technology improvement is a rise in $ A $, then obviously both capital and labor prices rise proportionally with the rise in $ A $ if $ K, L $ are inelastically supplied. "Change in technology" is ambiguous, and there are all sorts of things that can go wrong. Maybe you live in a Malthusian world? The after-depreciation marginal product of capital is fixed in steady state by the timing preferences of the consumers? etc.
Ege Erdil
CC BY-SA 3.0
2018-02-07T03:04:24.533Z
This was how the question was asked in _Mankiw-Macroeconomics_, I think maybe he wanted the reader to think various things that may result from a change in technology. That makes this question too general.
Piyush Divyanakar
<macroeconomics><supply-and-demand><production-function>
How change in technology affects the price of labour and capital?
Piyush Divyanakar
# How change in technology affects the price of labour and capital?

(Asked by: username_0 on 2018-02-06)

If the technology improves how does the price of labour and capital change. We take the neo-classical assumption that demand for each factor depends on it's marginal productivity, and demand and supply are in balance. The exact change should depend on the production function, right? So how can we say what will happen.

**Tags:** macroeconomics, supply-and-demand, production-function

> **Comments:**
> **username_1**: This is way too general, but if you have a production function $ A \cdot F(K, L) $ and the technology improvement is a rise in $ A $, then obviously both capital and labor prices rise proportionally with the rise in $ A $ if $ K, L $ are inelastically supplied. "Change in technology" is ambiguous, and there are all sorts of things that can go wrong. Maybe you live in a Malthusian world? The after-depreciation marginal product of capital is fixed in steady state by the timing preferences of the consumers? etc.  
> **username_0**: This was how the question was asked in _Mankiw-Macroeconomics_, I think maybe he wanted the reader to think various things that may result from a change in technology. That makes this question too general.  

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