PROBLEMS AND APPLICATIONS 1. In the labor market, workers would like to receive

Question

PROBLEMS AND APPLICATIONS 1. In the labor market, workers would like to receive higher wages and firms would like to pay lower wages. a. Suppose that workers succeed in having a minimum wage established above the equilibrium wage. What will happen to the number of workers employed when compared to the original equilibrium? Explain. b. Suppose that firms succeed in having a maxi- mum wage established below the equilibrium wage. What will happen to the number of workers employed compared to the original equilibrium? Explain. c. What wage maximizes the number of workers mployed? Why?

Explanation / Answer

a when compared to original equilibrium the number of workers employed will fall

B The numbers of workers employed will again fall as supply falls less than demand and less workers are willing to work

C The wage where supply of labour=demand for labours maximises the no. Of workers employed. This is called equilibrium wage. It is because above it supply of workers is less than demand so there is unemployment and wage will tend to fall to equilibrium wage. Similarly below it demand for labour is greater than supply and hence less numbers are employed and wage will tend to rise to equilibrium wage

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