hw5ansEC 480 - 3 L w w L E-= •-= • ∆ ∆ = Union 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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