homework_3_labor_market_equilibrium_answer_key

homework_3_labor_market_equilibrium_answer_key - ,Davis...

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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Summer Session II 2009 Economics 151a Homework 3 – Answer Key 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)? Fall in E from E* to E T 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, on average, the employees value the benefit at $1 per hour that they work. Compare, in words, the level of employment at Rapidzo Inc. to the situation where the government is not involved at all (no tax, no mandated benefit). $1.00 Wage seen by firm Wage seen by worker $2 E $ S D D’ E* E T S S $ S’
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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Summer Session II 2009 Fall in E from E* to E M c. Compare the level of employment under the payroll tax (part a) and mandated benefit (part b). (in words). E
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This note was uploaded on 11/02/2009 for the course ECON 151A taught by Professor Miller during the Summer '06 term at UC Davis.

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homework_3_labor_market_equilibrium_answer_key - ,Davis...

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