Question 1: Suppose that we are in the labour market. Labour is used as an input in the production of an output (Q), which sells at a price (p). However, a firm that uses this labour (L) needs to pay them the wage rate per unit (w). Labour is supplied by workers according to the Labour Supply curve: Lg=W-13 The Marginal Product of Labour (MPL) is given by: MPL = 20 - L Finally, the final price for the product (p) is $10. a) What is the total employment and wage rate in the labour market equilibrium (w* & L")? L' = 17; w = $30 Now suppose that the demand for the final product decreases and this reduces the price by $4. b) How does this change in p affect the equilibrium wage rate? New w* = $26.40

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