When buyers purchase AI in production, it involves a risk which they may suffffer from a risk

of losing. Also, the AI can be used together with workers to producing. So in this essay we
assumed AI to be a kind of capital goods.
Labour market is the market in which workers compete for jobs and employers compete for
workers. Marginal product of labour is the change in total output as one additional labour is
employed to production. Marginal revenue is the change in total
revenue as additional output produced. MRP is marginal product times marginal revenue. It’s
diminished due to diminishing marginal product. Also, it’s the changed in total revenue when
an additional worker is employed. Therefore, it’s the maximum wage the employer willing to
pay for an additional worker. So, it’s the demand for labour.
Figure 1 shows the labour market for perfectly competitive labour
market. According to maximizing profifit for each producer, in the short
run they should produce at MRP=wage. So, the number of workers
employed is L0 for each producer. And L00 in the market.
As AI be introduced into production, it becomes a more effiffifficient way of
producing than what humans can do. More specififically, it would be more
realistic to be the fact that AI can be used at much higher marginal
product than humans.
Here, MPK is marginal product of AI.MPK is always greater than MPL
because AI is more effiffifficient than humans. Although price of AI is greater
than that of labour, this will still result in MPK/PK>MPL/PL, which means
spending one dollar to deploy AI into production can generate more
product than employing labour. However, the producers’ budget is
limited, So, in the long run, which means quantity of capital goods can
be changed, the producers will fifind a best use of resources to produce.
So, here, the producers will increase the purchasing of AI to replace
labour. As the quantity of AI increases and quantity of labour decreases,
MPK will decrease as well as MPL increases. So,MPK/PK will decrease
and MPL/PL will increase. This process will continue until MPK/
PK=MPL/PL. And when it’s achieved, producers are producing at best
combination of resources.
So, in the long run, the demand for labour will decrease as producers purchase more AI in
production. So quantity demanded for labour will decrease from L0 to L1.
Therefore will result a structural unemployment. More specififically, it’s technically
unemployment as workers are fifired due to they have been replaced by AI.
However, in practice, the unemployment does not rise as new machines being invented. For
instance, after the fifirst Industrial Revolution, lots of new machines appeared. But, the
employment increases as a result. On the other hand, the AI appeared quite a long time ago
such as calculators. But, the unemployment does not
rise as calculators invented. So the unemployment will not rise as AI invented. There are
mainly three reasons can explain that.
The fifirst is the AI can be used together with labour. This will increase the marginal product
of workers as they will become more effiffifficient with the help of AI. So the MPL/ PL will
not less too much than MPK/PK. Also, the producers will use labour and AI together to
maximizing total output. Therefore, the demand for labour will not
decrease too much
The second is the cost of buying AI is very high. So, for many small fifirms, they do not have
much demand, so they only need to choose a small scale of production. And for this scale,
they only need a little bit of capital goods(AI) or zero. Therefore, in this case,
the demand for labour will not decrease.
The third is for many jobs such as Deliver Staffff, if using AI to replace workers, then it will
cost much more than labour. So, for these kinds of jobs, labour will not be replaced
There are two economic models show how the AI inflfluences the economic activity.
AD-AS model and Solow growth model
In the short run, if the introduction of AI creates a lot of unemployment in the economy, then,
it will decrease the aggregate demand in the economy as AD=C+I+G+NX. The
unemployment will reduce consumption. As shown in Figure 3, the output in the economy
decreases from Y to Y1. This reduce people’s living standards. Also it reduces people’s
income and create poverty in the economy.
However, in the long run, AI will increase the productive potential of the
economy. This will cause an increase in aggregate supply. As shown in the diagram, both
LRAS and SRAS increased. In addition, using AI in production can also produce some new
job opportunities in the long run. For example, the appearance of a kind of artifificial
intelligence, computer, creates jobs such as programmers. So, in the long run, the aggregate
demand will not decrease. From the diagram, it remains unchanged. Finally, the output in the
economy in the long run increases from Y to Y2. It shows a completely difffferent result than
the short
run.
This is a really commendable result. This is because the increased output in the economy is a
sustainable development. As time goes on, the quantity and quality of AI will increases. This
will increase LRAS again. And it may also creates more jobs which will increase people’s
income and increase AD. If the increased AS meets the increased AD, then, the output in the
economy will continues to grow, which means people’s income will rise.On the other hand, as
AI replace workers those most exhausting and diffiffifficult jobs, people’s living
standards will be improved.
Nevertheless, most of the increased income is divided by the investors of AI, like Nvidia or
Apple. And, in the end, the production and invention of artifificial intelligence is likely to
become an oligopoly market which consist of few big fifirms, like Nvidia. This means the
price of AI technology is set completely by the monopolists, while other people can only be
exploited.
On the other hand,for the small fifirms, if they cannot afffford the expensive price for using
AI technologies, then, they will not be able to compete with those large fifirms. So the poor
will continue to be poor and the rich will continue to be rich. Therefore, AI will
increase income inequalities in the economy.
At the international level, only big countries have advanced AI technologies. For those small
countries, they can only buy AI products or some technologies from large countries. This is
also a kind of exploitation and also will lead to a gap between the rich and the poor in the
world. This is unfair.
In the super long run, Solow Growth model is crucial to discuss whether AI brings overall
benefifits or defects.
Figure 5 shows the Solow Growth model. The straight line (n+&)k is critical investment. It
means the amount of investment per capita needs to make capital per capita stays
same. The blue curve sy is saving per capita which is investment per capita. The black curve
Z*f(k) is a function of output per capita. When the blue curve meets the straight
line, the injection of investment is equal to leakage of it. At that point, average capital will not
change anymore, and so it’s a steady state.
Initially, before AI being used, the production function per capita is y=Z1*f(k). After AI
being used, the effiffifficiency of production per each capital will increase. So, the
production function will upshift and becomes y=Z2*f(k). As y increases,s1y will also increase
which make the blue curve upshift and becomes s2y. Now, the steady state
of capital per capita increases form kA1 to kA2, the output per capita increase from y1 to
y2.This all results from the AI technology increases the effiffifficiency of all capital goods.
Overall, the improving technology of AI is sustained. So, the output per capita will continue
to grow in super long run.