Question

Suppose that you have been hired to analyze the impact on employment from the imposition of a minimum wage in the labor market. Further suppose that you estimate the supply and demand functions for labor, where L stands for the quantity of labor (measured in thousands of workers) and W stands for the wage rate (measured in dollars per hour): Demand: L D = 100 - 3W Supply: L S = 7W. First, calculate the free-market equilibrium wage and quantity of labor. The competitive market equilibrium wage is $ _______ per hour. (Enter your response as an integer.) The competitive market equilibrium quantity of labor is ______ thousand workers. (Enter your response as an integer.) Now suppose the proposed minimum wage is $ 12. How large will the surplus of labor in this market be? With a minimum wage of $ 12 per hour, the surplus will be ______ thousand workers. (Enter your response as an integer.)

Answer 1

Answer:

The competitive market equilibrium wage is $  10   per hour.

The competitive market equilibrium quantity of labor is 70 thousand workers.

With a minimum wage of $ 12 per hour, the surplus will be 20 thousand workers.

Explanation:

We set up the equation system:

$\left \{ {{\a L_d = 100 - 3W} \atop {\a L_s = 7W}} \right.$

If Ld = Ls then:

100 - 3w = 7w

100 = 10w

100/10 = w = 10

and now we solve for L

L = 100 - 3*10 = 100-30 = 70

L = 7*10 = 70

(II)

If w = 12

Ld 100 - 3*12 = 64

Ls 7*12 = 84

Surplus 20 thousands