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econ151a_ps6_winter2010

# econ151a_ps6_winter2010 - Problem Set 6 Economics 151A...

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Problem Set 6 Economics 151A, Winter 2010 Due 2/23/10, 12:10 pm 1. A competitive labor market is summarized by the following labor supply and labor demand curves. E is the number of employee hours (in thousands) and W is their hourly wage. ED = 100 4W ES = 20 + W a. Find the equilibrium level of employment and wages in the labor market. b. Suppose firms are now required to provide every employee with a bottle of sparkling water for each hour they work, at a cost of \$1 per bottle. If employees value the sparkling water at its full cost, show (graphically and with algebra) that this does not change the total compensation paid or received, or the total number of worker hours hired. c. Now, find the equilibrium wage, total compensation paid and received, and total worker hours hired if employees value the sparkling water at only \$0.25 per bottle. d. Calculate the deadweight loss from the mandated benefit of sparkling water under the assumption in part c that the water is worth only \$0.25 per bottle to the workers.

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econ151a_ps6_winter2010 - Problem Set 6 Economics 151A...

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