3. Suppose that the supply side of the labor market in Moline-Rock Island, IL has 10,000 (potential) workers, with hourly reservation wages distributed uniformly on the interval [0,10]. Each worker supplies (perfectly inelastically) 8 hours of work per day if the market wage is greater than or equal to his/her reservation wage and does not work if the market wage is below his/her reservation wage. On the demand side, the aggregate demand curve for daily employment hours is Ed=144,000 10,000w. a. Find an equation for the aggregate supply curve for daily employment hours in the Moline-Rock Island labor market. b. Find the hourly wage and aggregate daily employment hours in the competitive equilibrium in the Moline-Rock Island labor market. c. If a minimum wage of Wmin = $8.80/hr is imposed in the Moline-Rock Island labor market, what is the new employment level? d. Suppose that, at the post-minimum wage employment level in (c), the (now scarce) jobs are allocated efficiently, which means that the initially employed workers with the highest reservation wages are the ones displaced by the minimum wage. What is the distribution of reservation wages among the displaced workers after the minimum wage is imposed and how large is the deadweight loss from the minimum wage?
3. Suppose that the supply side of the labor market in Moline-Rock Island, IL has 10,000 (potential) workers, with hourly reservation wages distributed uniformly on the interval [0,10]. Each worker supplies (perfectly inelastically) 8 hours of work per day if the market wage is greater than or equal to his/her reservation wage and does not work if the market wage is below his/her reservation wage. On the demand side, the aggregate demand curve for daily employment hours is Ed=144,000 10,000w. a. Find an equation for the aggregate supply curve for daily employment hours in the Moline-Rock Island labor market. b. Find the hourly wage and aggregate daily employment hours in the competitive equilibrium in the Moline-Rock Island labor market. c. If a minimum wage of Wmin = $8.80/hr is imposed in the Moline-Rock Island labor market, what is the new employment level? d. Suppose that, at the post-minimum wage employment level in (c), the (now scarce) jobs are allocated efficiently, which means that the initially employed workers with the highest reservation wages are the ones displaced by the minimum wage. What is the distribution of reservation wages among the displaced workers after the minimum wage is imposed and how large is the deadweight loss from the minimum wage?
Chapter16: The Markets For Labor, Capital, And Land
Section: Chapter Questions
Problem 5P
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![3. Suppose that the supply side of the labor market in Moline-Rock Island, IL has 10,000
(potential) workers, with hourly reservation wages distributed uniformly on the interval
[0,10]. Each worker supplies (perfectly inelastically) 8 hours of work per day if the
market wage is greater than or equal to his/her reservation wage and does not work if the
market wage is below his/her reservation wage. On the demand side, the aggregate
demand curve for daily employment hours is Ed = 144,000 – 10,000w.
a. Find an equation for the aggregate supply curve for daily employment hours in
the Moline-Rock Island labor market.
b. Find the hourly wage and aggregate daily employment hours in the competitive
equilibrium in the Moline-Rock Island labor market.
c. If a minimum wage of wmin = $8.80/hr is imposed in the Moline-Rock Island
labor market, what is the new employment level?
d. Suppose that, at the post-minimum wage employment level in (c), the (now
scarce) jobs are allocated efficiently, which means that the initially employed
workers with the highest reservation wages are the ones displaced by the
minimum wage. What is the distribution of reservation wages among the
displaced workers after the minimum wage is imposed and how large is the
deadweight loss from the minimum wage?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3b94c23-50f4-45e7-9cf5-b5ddaea0631a%2Fb20b2590-eec7-483f-858a-faba364cd383%2Fbx36x7k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. Suppose that the supply side of the labor market in Moline-Rock Island, IL has 10,000
(potential) workers, with hourly reservation wages distributed uniformly on the interval
[0,10]. Each worker supplies (perfectly inelastically) 8 hours of work per day if the
market wage is greater than or equal to his/her reservation wage and does not work if the
market wage is below his/her reservation wage. On the demand side, the aggregate
demand curve for daily employment hours is Ed = 144,000 – 10,000w.
a. Find an equation for the aggregate supply curve for daily employment hours in
the Moline-Rock Island labor market.
b. Find the hourly wage and aggregate daily employment hours in the competitive
equilibrium in the Moline-Rock Island labor market.
c. If a minimum wage of wmin = $8.80/hr is imposed in the Moline-Rock Island
labor market, what is the new employment level?
d. Suppose that, at the post-minimum wage employment level in (c), the (now
scarce) jobs are allocated efficiently, which means that the initially employed
workers with the highest reservation wages are the ones displaced by the
minimum wage. What is the distribution of reservation wages among the
displaced workers after the minimum wage is imposed and how large is the
deadweight loss from the minimum wage?
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