demand for high-skill labor in fields such as information technology and network administration.

Step 2. Does the new technology affect the supply of labor from households or the demand for labor from

firms? The technology change described here affects demand for labor by firms that hire workers.

Step 3. Will the new technology increase or decrease demand? Based on the description earlier, as the
substitute for low-skill labor becomes available, demand for low-skill labor will shift to the left, from D0 to D1.
As the technology complement for high-skill labor becomes cheaper, demand for high-skill labor will shift to
the right, from D0 to D1.

Step 4. The new equilibrium for low-skill labor, shown as point E1 with price W1 and quantity Q1, has a lower
wage and quantity hired than the original equilibrium, E0. The new equilibrium for high-skill labor, shown as
point E1 with price W1 and quantity Q1, has a higher wage and quantity hired than the original equilibrium
(E0).
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