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ProblemSet2 - Economics 3203 Fall 2010 Problem Set # 2:...

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Economics 3203 – Fall 2010 Problem Set # 2: Labor Demand (1) Due Monday, September 20 (in class) 1. Consider the market for labor in the shoeshine industry. Let’s think about how this market works and how it would be affected by government payroll taxes. Below are the demand and supply conditions. Assume competitive product and labor markets. W represents daily wages in dollars, and L represents thousands of workers (i.e. L = 1 means 1,000 workers). The market’s labor supply curve can be expressed: W = 40 + 2L The market’s labor demand curve can be expressed: W = 100 - L a) Draw the supply and demand graph for this market, labeling the lines, axes, and intercepts. How many workers will be employed in this market, and at what wage rate, in equilibrium? b) Suppose the government places a $15/day payroll tax on employers for each worker in this industry. Employers are required to pay this tax out of their revenues. Re-draw the supply and demand graph based on the original supply and demand curves, and then show the change caused by this tax. What are the new equilibrium total employment and wage levels? Note that there are
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This document was uploaded on 09/04/2011.

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ProblemSet2 - Economics 3203 Fall 2010 Problem Set # 2:...

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