Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 16, Problem 16.4P
a)
To determine
To find:
Equilibrium level of w and l
b)
To determine
To know:
Amount of subsidy, new equilibrium level and subsidy to be paid.
c)
To determine
To know:
Demand for labor and
d)
To determine
To plot:
Graphical representation of the results.
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The market for low-skilled workers is highly competitive, due to the high numbers of low skilled individuals. If the labor supply is given by the equation QS = 10W and measured per hour, and the demand for labor is given by the equation QD = 240 − 20W. Where Q measures the quantity of labor hired (in thousands of hours). Answer the following:
(a) At the market equilibrium what is the going wage rate and quantity of low-skilled labor being employed?
(b) If the union successfully forces a minimum wage increase of $9 per hour, at the new market equilibrium what will be the new quantity of labor hired and the quantity of any excess (demand or supply) of labor?
(c) At the $9 minimum wage how much deadweight loss is created?
(d) After the implementation of the $9 minimum wage, in terms of surplus how much better off are low-skilled workers and how much worse off are employers?
(e) If the minimum wage is set at $11 rather than $9 how does the deadweight loss and surplus change?
How would imposing a minimum wage below the market-clearing wage affect employment in a competitive labor market?
Group of answer choices
a. Employment would be unchanged because the market forces drive the wage to a higher level.
b. Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.
there would be a shortage of labor
c. Employment would increase because setting a minimum wage below the market wage would increase the quantity of labor demanded
d. Employment would decrease because the quantity of labor supplied would decrease
Draw supply and demand curves for the labor market.
What is the equilibrium hourly wage (W*) and the equilibrium quantity of labor (Q*)?
If the current market wage is $10.50, how does the labor market adjust back to the equilibrium?
If a minimum wage of $8.50 an hour is mandated, what is the quantity of labor demanded? what is the quantity of labor supplied? What is the amount of shortage or surplus in the labor market as a result of the price control?
If a minimum wage of $9.50 an hour is mandated, what is the quantity of labor demanded? what is the quantity of labor supplied? What is the amount of shortage or surplus in the labor market as a result of the price control?
Using the supply and demand graph in part (a) above, illustrate the effect of the price control.
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