hw5ansEC 480 - 3 . , , L w w L E-= -= = Union A faces a...

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ECN 3890 Name_______________________________________ Spring 2007 Answers to In-class Assignment (Homework 5) Assume that a unit of labor is measured in worker-hours rather than workers. Union A faces a demand curve in which a wage of $4 per hour leads to quantity demanded of 20,000 worker- hours and each wage increase of $1 per hour leads to a decrease in quantity demanded of 10,000 worker- hours. Union B faces a demand curve in which a wage of $6 per hour leads to a quantity demanded of 30,000 worker- hours, while each wage increase of $1 per hour leads to a decrease in quantity demanded of 3,000 worker- hours. 1. Calculate the elasticity of labor demand for each union . Which union faces the more elastic demand curve? L w w L w % L % E = = For Union A: 2 000 20 4 1 000 10 - = - = = , , L w w L E For Union B: 6 0 000 30 6 1 000
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Unformatted text preview: 3 . , , L w w L E-= -= = Union A faces a demand that is ELASTIC. Union B faces a demand that is INELASTIC. 2. Suppose that each union successfully negotiates a 10% increase in wages. Calculate the change in the quantity of labor demanded for each union . Union A: w % L % =-2 10 2 L % =-20-= L % Union B: w % L % . =-6 10 6 L % . =-6-= L % 3. What will happen to the wage bill of each union ? Explain how you can determine this. The wage bill (w L) of Union A will fall. L falls when w rises. Since demand is elastic % L > % w. So (w L) will fall. The wage bill (w L) of Union B will rise. L falls when w rises. Since demand is inelastic % L < % w. So (w L) will rise....
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This note was uploaded on 03/19/2008 for the course ECON EC 480 taught by Professor Elder during the Spring '08 term at Michigan State University.

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