ch9_example3 - The market for semiskilled labor can be...

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The market for semiskilled labor can be represented by the following supply and demand curves: L D = 32000 - 4000W L S = -8000 + 6000W, where L = millions of person hours per year, and W = the wage in dollars per hour. a. Calculate the equilibrium price and quantity that would exist under a free market. What impact does a minimum wage of $3.35 per hour have on the market? b. The government is contemplating an increase in the minimum wage to $5.00 per hour. Calculate the impact of the new minimum wage on the quantity of labor supplied and demanded. c. Calculate producer surplus (laborers’ surplus) before and after the proposed change. Comment on the net effect of the proposed change upon workers as a whole and on individual workers. How does this price floor differ from an agricultural support price? d. Is the policy efficient from an economist's viewpoint? Solution: a. equate L D to L s 32000 - 4000W = -8000 + 6000W 40000 = 10,000W W = $4.00 per hour L D = 32,000 - 4000(4) L D = 16,000 million person hours
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This note was uploaded on 04/07/2009 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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ch9_example3 - The market for semiskilled labor can be...

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