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homework_3_labor_market_equilibrium - ,Davis Economics 151a...

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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Summer Session II 2009 Economics 151a Homework 3 Labor Market Equilibrium 1. Rapidzo Inc. fabricates toy race cars for the consumer market. They have 10 craftspeople working for them before any government intervention. The government has decided that individuals in the world irrationally underestimate the need for disability insurance coverage and that the government must choose to either provide disability insurance coverage through a payroll tax or to mandate that all firms in the nation must provide disability insurance coverage. a. Draw an example of a labor market below where a tax of $2 per hour worked by an employee of Rapidzo Inc. is taken by the government in order to provide insurance coverage. What will be the effect on employment (in words, not numerically)? b. Draw the market for labor at Rapidzo Inc. if instead the government mandates that Rapidzo Inc. provides disability insurance coverage when the cost of providing disability insurance coverage is $1.50 per hour worked and,
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