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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.
- Spring '08