ProblemSet1-AK

# ProblemSet1-AK - ECP 3203 Fall 2010 ANSWER KEY to Problem...

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ECP 3203 – Fall 2010 ANSWER KEY to Problem Set # 1 1. a) Weekly Wage \$667 Supply Demand 20,000 100,000 Number of Bus drivers b) Set L S = L D and solve for W*. Then plug in W* to either equation to get L*. Result: W* = \$160/week, L* = 76,000 bus drivers c) The new supply curve is L S = 40,000 + 350W. Weekly Wage old new \$667 Supply Supply Demand 20,000 40,000 100,000 Number of Bus drivers Set this equal to L D to get the new W* = \$120/week and L* = 82,000 bus drivers. Since wages fell (in response to the supply increase) some bus drivers do not accept jobs even though they would have taken them at the higher wage rate. 2. a) demand shifts left, wages and employment decrease (this assumes short run) (or in the long run, scale effect causes both K and L to increase, but substitution causes K to increase and L to decrease, so final effect on employment is ambiguous) b) demand shifts left because product demand has decreased; wages and employment decrease (could also potentially affect labor supply, if workers are afraid of being at the factory) c) supply shifts left (people leave the market to go to school), wages increase and employment in this labor market decreases

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## This note was uploaded on 06/07/2011 for the course ECP 3202 taught by Professor Hamersma during the Fall '10 term at University of Florida.

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ProblemSet1-AK - ECP 3203 Fall 2010 ANSWER KEY to Problem...

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