Use tables below to answer the question. PRODUCTION FUNCTION LABOR MARKET Labor

Question

Use tables below to answer the question.

PRODUCTION FUNCTION                                      LABOR MARKET                      

Labor hours         Real GDP                       Real wage             Quantity of labor
(per day)            (2016 dollars)                   (2016 dollars)    demanded      supplied
     10                          150                             1.00                       20                   60
     20                          270                              0.90                       30                   50
     30                          370                              0.80                       40                   40
     40                          450                              0.70                       50                   30
     50                          510                              0.60                       60                   20             

Suppose the government introduces a minimum wage of $0.90 an hour. What is the real wage rate now, the quantity of labor employed, potential GDP, and enemployment?

Explanation / Answer

REAL WAGE RATE = 0.80*0.90 = 0.72/h Quantity of labor employed = 40 units Potential gdp = 370 dollars Employment = 370/30 = 12.33~12

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