Unformatted text preview: moral hazard and adverse selection. Explain the role that these two concepts play in this scenario. 3. Consider the market demand for labor L D and the supply of labor L S , where W is the market wage. Demand : L D = 1000-20 W Supply : L S =-200 + 40 W (a) What is the equilibrium market wage and employment level? Show graph-ically and algebraically. (b) Calculate the equilibrium market wage and employment level if the workers negotiate a beneﬁt worth $2 that costs the employers $1. Show graphically and algebraically. (c) On a separate graph, calculate the equilibrium market wage and employ-ment level if the workers have insurance which costs the employers $1, but assume that the workers do not value the insurance at all because they could have free government-provided health insurance. Show graphically (on a separate graph) and algebraically....
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- Spring '11
- Supply And Demand, equilibrium market wage