LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 4, Problem 6P
a)
To determine
The market clearing wage rate, number of workers employed, and the
b)
To determine
The effect of minimum wage on the level of employment and producer surplus.
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In a particular industry, labor supply is ES = 10 + w and labor demand is ED = 40 -4w,where E is the level of employment and w is the hourly wage.(a) If government imposed minimum wage $7. Calculate the surplus labor at minimum wage.
Consider the labour market for farms during the harvest season. Assume the market is perfectly competitive, with a labour demand function QD = 10-P and a labour supply function QS = 3P, where P is the wage.
a) What are the consumer (farm owners) surplus and producer (farm workers) surplus in equilibrium?
b) What is the price elasticity of demand at the equilibrium?
c) Suppose the government subsides the farm owners (consumers) $1 for every unit of labour purchased. Then, compute the quantity of labour traded in the market, the wage received by the workers and the wage paid by the farm owners.
d) Calculate the consumer surplus and producer surplus in the presence of the subsidy in part c).
Walmart employs the majority of people in small rural town. It's demand for labor is given by QD=100-2P. The supply of labor is given by Qs=3P.
✓ people would be
If the labor market functioned as a competitive market, the wage rate (the price of labor) would be
employed, and the producer surplus would be
Because Walmart faces little competition for workers, it decides to offer the wage that maximizes consumer surplus (the monopsonist price). This
wage is
✓being employed. The producer surplus is now
✓. Note: don't worry if the number of
✓, which results in
workers is not an integer.
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