I need answers for 17 and 18 Suppose the inverse labor supply curve is: w-5L. Th

Question

I need answers for 17 and 18 Suppose the inverse labor supply curve is: w-5L. The inverse labor demand curve is: w-100-20L 7. Solve for the competitive market equilibrium (CME) wage and employment level. 8. Is there any unemployment at the CME? 9. If the govenment sets a minimu m wage at S40, what is the resulting quantity of labor supplied and demanded? 10. What happened to the employment level after the government imposed a minimum wage in this model? 11. Under what conditions could a minimum wage actually increase employment? 12. Under the minimum wage policy, how many unemployed workers are there? For the following questions refer back to the CME. The minimum wage policy does not exist. 13. If the government imposes a $25 income tax (a per-unit tax on labor), what is the new employment level wage workers receive (the tax inclusive wage), and wage firms pay? 14. How much tax do firms pay? 15. How much tax do workers pay? 16. Who pays more tax and why? 17. How much revenue could the government have raised in a head tax that has the same burden on workers and firms? 18. Why don't governments typically use head taxes?

Explanation / Answer

7) Market equilibrium occurs where labor demand = labor supply

5L = 100 - 20L

L* = 4

w = 5*4 = $20

Hence the wage rate in market is $20 and labor hired is 4 units.

8) There is no unemployment at this level

9) At wage rate = $40, Qty demanded of labor 100 - 20L = 40 so Ld = 3 units

Qty of labor supplied Ls = 40/5 = 8 units

10) Employed level falls to 3 units

11) When the minimum wage is lower than the market wage

12) There is an unemployment of 8 - 3 = 5 units.

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