The diagram to the right shows the market for labor in a particular industry. It
ID: 1113908 • Letter: T
Question
The diagram to the right shows the market for labor in a particular industry. It shows both the supply of labor (the average cost of labor) and the marginal cost of labor a. Suppose the labor marke: is competitive. What are the equilibrium wage and level of employment? Round your responses MC to the nearest whole number.) The equilibrium wage wll be The equilibrium employment level will be orkers. b. Now suppose the govemment imposes a minimum wage equal to $15. What happens to wages and employment? (Round S AC your responses to the nearest whole number) The new wage will be c. In the absence of a minimum wage, what is the oulcome if there is a monopsony buyer of labor services? Round your The new employment level will be workers. responses to the nearest whole nuber.) In the absence of a minimum wage, a monopsoy buyer o labor services would choose an and pay a wage of S d. Beginning with the moncpsony oulcome, whal happens if the gavermment imposes a minimum wage of $11? fRound your l level o orkers 0 5 15 20 25 30 35 40 Emplayment responses to the neerest whole number.) Beginning with the monopsony outcome, if the govemment imposes a minimum wage of $11, the new monopsony employmenl level will be workers and lhe new wage will be$ e. Do minimum wages always reduce empbymernl? - OA No. Minimum wages always increase employment when the labor market is perfectly competitive. B. No. Minimum wages might increase employment when the labor market Rs perfectly competitive or dominated by a c D. Yes. Minimum wages ahvays reduce employment No Minimum wages might increase employment when the labor market s dominated by a monopsony.Explanation / Answer
(a) Competitive equilibrium is at intersection of labor demand (D) & labor supply (S) curves.
Equilibrium wage = $13
Equilibrium employment = 30
(b) When minimum wage = $15, Quantity of labor demanded = 25 & Quantity of labor supplied = 35
New wage = Minimum wage = $15
Equilibrium employment = Min{Quantity of labor demanded, Quantity of labor supplied} = Min{25, 35} = 25
(c) Monopsony equilibrium is at intersection of D & MC curves.
Employment = 20
Wage = $17
(d) When minimum wage = $11, the minimum wge is ineffective because it is not binding (Since this is set below the monopsony market wage rate). Equilibrium wage and employment will remain the same.
New wage = $17
Equilibrium employment = 20
(e) Option (C)
In case of monopsony, a minimum wage may increase employment level.
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