(a) Solve for the equilibrium wage and employment level.(b) Graph the demand and supply curves.(c) At this equilibrium, what is your welfare/gains from trade?(d) Now, assume a minimum wage has been implemented at $20. How will this impact yourdemand? Supply?(e) How many workers are displaced by this new policy? How much “extra” unemployment occurswith this new policy? Hint: Think about the reservation wage.(f) Graph the new labor demand and supply with this minimum wage.(g) At this equilibrium, what is your new welfare? Are you better off with this change? Explain. Problem 2Let's assume you’ve found the following labor demand and supply curves:Lp30 – wLs= 2w(a) Solve for the equilibrium wage and employment level.(b) Graph the demand and supply curves.(c) At this equilibrium, what is your welfare/gains from trade?(d) Now, assume a minimum wage has been implemented at $20. How will this impact yourdemand? Supply?(e) How many workers are displaced by this new policy? How much “extra" unemployment occurswith this new policy? Hint: Think about the reservation wage.(f) Graph the new labor demand and supply with this minimum wage.(g) At this equilibrium, what is your new welfare? Are you better off with this change? Explain.

Answered: Problem 2 Let's assume you've found the…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter14: Labor Markets And Income

Section: Chapter Questions

Problem 3SCQ: Table 14.12 shows the quantity demanded and supplied in the labor market for driving city buses in...

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Question

(a) Solve for the equilibrium wage and employment level.
(b) Graph the demand and supply curves.
(c) At this equilibrium, what is your welfare/gains from trade?
(d) Now, assume a minimum wage has been implemented at $20. How will this impact your
demand? Supply?
(e) How many workers are displaced by this new policy? How much “extra” unemployment occurs
with this new policy? Hint: Think about the reservation wage.
(f) Graph the new labor demand and supply with this minimum wage.
(g) At this equilibrium, what is your new welfare? Are you better off with this change? Explain.

Problem 2
Let's assume you’ve found the following labor demand and supply curves:
Lp
30 – w
Ls
= 2w
(a) Solve for the equilibrium wage and employment level.
(b) Graph the demand and supply curves.
(c) At this equilibrium, what is your welfare/gains from trade?
(d) Now, assume a minimum wage has been implemented at $20. How will this impact your
demand? Supply?
(e) How many workers are displaced by this new policy? How much “extra" unemployment occurs
with this new policy? Hint: Think about the reservation wage.
(f) Graph the new labor demand and supply with this minimum wage.
(g) At this equilibrium, what is your new welfare? Are you better off with this change? Explain.

Expert Solution

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Answer:

Given, labor demand function and labor supply function respectively:

$L_{D} = 30 - w L_{S} = 2 w$

(a). At equilibrium, the number of laborers demanded and the numbers of labor supplied will be equal.

$L_{D} = L_{S} 30 - w = 2 w 30 = 2 w + w 30 = 3 w w = \frac{30}{3} w = 10 L e t u s s u b s t i t u t e t h e v a l u e o f w = 10 i n e i t h e r d e m a n d o r s u p p l y f u n c t i o n N o t e : a t t h e e q u i l i b r i u m w a g e b o t h f u n c t i o n s w i l l g i v e s a m e n u m b e r s L = 2 \times 10 L = 20$

Equilibrium wage = 10

Employment level = 20

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