3. Excess supply with union wages Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labor union negotiates an industry-wide wage for various kinds of labor (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $15 to $20 per hour. The following graph shows the labor demand of an individual firm. On the following graph, show what happens at the firm level as a result of the union negotiations. WAGE RATE 30 25 20 15 10 5 0 0 12 24 36 48 QUANTITY OF LABOR Supply Demand 60 72 Now consider the effects of the wage change on the entire industry. Demand Supply (?)
3. Excess supply with union wages Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labor union negotiates an industry-wide wage for various kinds of labor (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $15 to $20 per hour. The following graph shows the labor demand of an individual firm. On the following graph, show what happens at the firm level as a result of the union negotiations. WAGE RATE 30 25 20 15 10 5 0 0 12 24 36 48 QUANTITY OF LABOR Supply Demand 60 72 Now consider the effects of the wage change on the entire industry. Demand Supply (?)
Chapter1: Making Economics Decisions
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Transcribed Image Text:3. Excess supply with union wages
Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through
collective bargaining, a labor union negotiates an industry-wide wage for various kinds of labor (electricians, plumbers, and so on). In particular, it
succeeds in negotiating a wage increase for carpenters from $15 to $20 per hour.
The following graph shows the labor demand of an individual firm.
On the following graph, show what happens at the firm level as a result of the union negotiations.
WAGE RATE
30
25
20
15
10
5
0
0
12
24
36
48
QUANTITY OF LABOR
Supply
Demand
60
72
Now consider the effects of the wage change on the entire industry.
Demand
Supply
(?)

Transcribed Image Text:Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
WAGE RATE (Dollars per hour)
30
25
20
15
10
5
0
Supply
0
Demand
12 24 36
48 60 72
QUANTITY OF LABOR (Thousands of workers)
Graph Input Tool
Wage Rate
(Dollars per hour)
Quantity
Demanded
(Thousands of
workers)
Excess Supply
(Thousands of
workers)
Demand Shifter
Pro-union
Advertising
(Millions of dollars)
The union's wage increase from $15 to $20 per hour causes an excess supply of
thousands of workers.)
15
36
0
0
Quantity Supplied
(Thousands of
workers)
Shortage
(Thousands of
workers)
?
36
0
workers. (Note: Be sure to enter your answer in
Suppose that the union, in order to mitigate the unemployment caused by the wage increase, bolsters demand by rolling out a "Buy Union" advertising
campaign. If the union spends $5 million on the campaign, the excess supply of labor will be
workers. (Note: Be sure to enter your
answer in thousands of workers.)
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