Consider the factor market for blue-collar employees. Draw the probable demand a

Question

Consider the factor market for blue-collar employees. Draw the probable demand and supply curves if workers learn quickly and the labor force is large with a high standard of living.

A) Analyze the impact of a unknown flu virus that ravages the population and leaves many bedridden.

B) Survivors of the epidemic suddenly become unusually prodictive. Stermine the effect of such a side effect on wages and employment in the area. Do they cancel each other and return the market to the original equilibrium?

Explanation / Answer

I cannot draw for you in this format. It will take quite a few words to explain what the graphs would look like.

You want to draw a graph with standard demand (downward-sloping) and supply (upward-sloping) curves. Where they intersect would be equilibrium. You would want to draw a line between this point and the y-axis (representing price); label the point where this intersects the y-axis for the equlibrium price. You can use Pe to denote equilibrium price if you want, but the specific label you use isn't important. Then draw another line between the equilibrium point and the x-axis (representing quantity); label the point where this intersects the x-axis for the equilibrium quantity. You can use Qe for the label, for example. The question doesn't specifically ask you to do this, but at the same time you probably should show the price floor on this graph. Draw a horizontal line somewhere above the equilibrium price to show this. Where this line crosses the price axis, mark with a label such as Pf for the price floor. Where this line crosses the demand curve, draw a horizontal line from the demand curve to the quantity axis; label the point where this line crosses the quantity axis Qd, for quantity demanded. Draw a similar line from the point where the price floor line crosses the supply curve to the quantity axis, label the point where this crosses the quantity axis Qs, for quantity supplied. You will need this information to answer part a.

(a) The amount of the surplus would be the difference between the quantity supplied and the quantity demanded, or Qs minus Qd above. I'm assuming that the price the government pays to purchase the surplus will be the same as the price floor, the question doesn't make that clear. The cost to the government to buy all of this surplus would be Pf times (Qs minus Qd). However, the question states that it is for a "bumper" crop; this may mean that they want you to consider the above graph to indicate a "normal" crop, and do this analysis for a different, "bumper" crop. I'm not sure if that is what they want you to do, but if it is you would have to first shift the supply curve to the right before drawing the extra lines and making labels.

(b) For this, you need to start over, with a standard demand / supply graph, and show the effects of a leftward shift in the supply curve. This will not involve a price floor line; you would have an initial equilibrium, you can use P1 and Q1 to label the associated price and quantity. Then after the leftward shift in the supply curve, you would have a new equilibrium where this crosses the demand curve. Label the associated price and quantity P2 and Q2. You will note that the new price is higher than the old price, which could be the same as the price floor in (a). But because there is no surplus for the government to purchase, the overall quantity will be lower than it would with the surplus being bought.

(c) President Bush has been out of office for almost two years, I'm not sure anybody will listen to his proposals, but for this part, start with a new demand / supply graph, and draw a rightward shift in the demand curve. Then label all of the relevant points as above, and you will see that the equilibrium price will rise; the equilibrium quantity will also rise, maybe matching the results in (a) above. These changes will have the basic affect as the above programs, so those programs might be unnecessary.

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