1. Suppose the demand for towels and supply of towels are given by the below: QD = 100 - 4P QS = P a. Find the equilibrium price and quantity using demand and supply functions above. b. Plot demand and supply curve on the same graph and point out the equilibrium quantity and price. You should draw each graph precisely with intercepts and slopes. c. Solve for the price elasticities of demand and supply at the equilibrium point. Which is more elastic: demand or supply? Simply explain why. d. Suppose there was a demand shock so that at each price 20 more towels are demanded since consumers want more. Plot the new demand curve on the graph that you derive in part (a). Find the new equilibrium price and quantity. (Hint: You may derive a new demand function by adding a constant to find a new equilibrium price and quantity.) 2. Low-skilled workers operate in a competitive market. The labor supply is QS = 10W, where W is the price of labor (hourly wage). The demand for labor is QD = 240 - 20W. Q measures the quantity of labor hired.. a. Find out the equilibrium wage and quantity of labor using the supply and demand function of the labor above (Now price of the worker, wage, is W.) b. Plot the demand and supply curve on the same graph and point out the equilibrium wage and quantity of labor. c. If the government imposes a minimum wage of $9, what will be the new quantity of labor hired? Plot the minimum wage on the graph that you derived in part (b). Will there be an excess demand or excess supply of labor? d. Using the plot from part (b) and (c), what is the deadweight loss (DWL) of a $9 minimum wage?
1. Suppose the demand for towels and supply of towels are given by the below: QD = 100 - 4P QS = P a. Find the equilibrium price and quantity using demand and supply functions above. b. Plot demand and supply curve on the same graph and point out the equilibrium quantity and price. You should draw each graph precisely with intercepts and slopes. c. Solve for the price elasticities of demand and supply at the equilibrium point. Which is more elastic: demand or supply? Simply explain why. d. Suppose there was a demand shock so that at each price 20 more towels are demanded since consumers want more. Plot the new demand curve on the graph that you derive in part (a). Find the new equilibrium price and quantity. (Hint: You may derive a new demand function by adding a constant to find a new equilibrium price and quantity.) 2. Low-skilled workers operate in a competitive market. The labor supply is QS = 10W, where W is the price of labor (hourly wage). The demand for labor is QD = 240 - 20W. Q measures the quantity of labor hired.. a. Find out the equilibrium wage and quantity of labor using the supply and demand function of the labor above (Now price of the worker, wage, is W.) b. Plot the demand and supply curve on the same graph and point out the equilibrium wage and quantity of labor. c. If the government imposes a minimum wage of $9, what will be the new quantity of labor hired? Plot the minimum wage on the graph that you derived in part (b). Will there be an excess demand or excess supply of labor? d. Using the plot from part (b) and (c), what is the deadweight loss (DWL) of a $9 minimum wage?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:1. Suppose the demand for towels and supply of towels are given by the below:
QD = 100 - 4P
QS = P
a. Find the equilibrium price and quantity using demand and supply functions above.
b. Plot demand and supply curve on the same graph and point out the equilibrium
quantity and price. You should draw each graph precisely with intercepts and slopes.
c. Solve for the price elasticities of demand and supply at the equilibrium point. Which
is more elastic: demand or supply? Simply explain why.
d. Suppose there was a demand shock so that at each price 20 more towels are demanded
since consumers want more. Plot the new demand curve on the graph that you derive
in part (a). Find the new equilibrium price and quantity.
(Hint: You may derive a new demand function by adding a constant to find a new
equilibrium price and quantity.)
Transcribed Image Text:2. Low-skilled workers operate in a competitive market. The labor supply is QS = 10W, where
W is the price of labor (hourly wage). The demand for labor is QD = 240 - 20W. Q
measures the quantity of labor hired..
a. Find out the equilibrium wage and quantity of labor using the supply and demand
function of the labor above (Now price of the worker, wage, is W.)
b. Plot the demand and supply curve on the same graph and point out the equilibrium
wage and quantity of labor.
c. If the government imposes a minimum wage of $9, what will be the new quantity of
labor hired? Plot the minimum wage on the graph that you derived in part (b). Will there
be an excess demand or excess supply of labor?
d. Using the plot from part (b) and (c), what is the deadweight loss (DWL) of a $9
minimum wage?
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