Question

Assume that labor demand is given by Qd = 200 - 10P and labor Supply is given by Qs = 10P - 20, where P = wage and Q = quantity of labor. If a minimum wage of $15 is imposed on this market, what is the net effect on wages paid to labor in this market? Group of answer choices $240 loss $100 loss $200 gain $360 gain $50 gain

Answer 1

Answer:

Loss of $240

Explanation:

Given:

Qd = 200 - 10P

Qs = 10P - 20

Now,

For Equilibrium Price,

Qs = Qd

or

10P - 20 =  200 - 10P

or

20P = 200 + 20

or

20P = 220

or

P = 11

therefore,

Initial Quantity Demanded,

Qd = 200 - 10(11)

= 200 - 110

= 90

Therefore,

Initial Revenue,

$TR_i = Qd \times P$

= 90 × (11)

=$990

After minimum wage limit,

P = $15

new quantity Demanded,

Qd = 200 - 10(15)

= 200 - 150

= 50

thus,

New Revenue,

$TR_f = Qd\times P$

= 50 × 15

= $750

therefore, we have a situation of Loss

Loss = $TR_i - TR_f$

= $990 - $750

= $240

Hence,

Loss of $240