1. Suppose demand for labor is given by: L=-50w+450 And supply is given by: L=10
ID: 1228913 • Letter: 1
Question
1. Suppose demand for labor is given by:L=-50w+450
And supply is given by:
L=100w
Where L represents the number of people employed and w is the real wage rate per hour.
a. What will be the equilibrium levels for w and L in this market?
b. Suppose the government wishes to raise the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? What will the new equilibrium level of employment be? How much total subsidy will be paid?
c. Suppose instead that the government declared a minimum wage of $4 per hour. How much labor would be demanded at this price? How much unemployment would there be?
Explanation / Answer
a. L = 100w L=-50w+450 equating them, we get, 100w = -50w + 450 150w = 450 w = 3 L = 300 Equilibrium levels ; w = 3 L = 300 b. L=-50w+450 subsidy: (4 - 3) = 1 dollars L = -50(w-1) + 450 also, L = 100w equating the curves, we get, 100w = -50(w-1) + 450 100w = -50w + 50 + 450 150w = 500 w = 3.333 dollars per hour employment L = 100 x 3.333 = 333.33 people = 334 people Subsidy paid = 1 x 334 = 334 dollars. c minimum wage = w = 4 hence, Ld = -50w + 450 = -50 x 4 + 450 = 250 Ls = 100w = 400 The number of people employed will be given by the labor demand, Hence number of workers = Ld = 250
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.