Suppose the inverse labor supply curve is: w=5 L. The inverse labor demand curve
ID: 1116088 • Letter: S
Question
Suppose the inverse labor supply curve is: w=5 L. The inverse labor demand curve is: w-100-20L. 7. Solve for the competitive market equilibrium (CME) wage and employment level. 8. Is there any unemployment at the CME? 9. If the government sets a minimum wage at $40, what is the resulting quantity of labor supplied and demanded? 10. What happened to the employment level after the government imposed a minimum wage in this model? 11. Under what conditions could a minimum wage actually increase employment? 12. Under the minimum wage policy, how many unemployed workers are there?Explanation / Answer
7) Labor supply = labor demand
5L = 100 -20L
25L = 100
L =4
W = 5*4 = 20
so, the employment level is 4 and wage is $20.
8) no there is no unemployment in the CME .
9) when government set minimum wage = $40. then
labor supply , 40 = 5L or L = 8
and labor demanded , 40 = 100 -20L or L = 3
10) The employment will fall after the government imposed a minimum wage in this model because, at the market competitive wage, the labor is demanded is 4 but after minimum wage, only 3 labor is demanded. therefore, employment will fall.
12) at minimum wage policy, there are 5 unemployed workers are there. because, labor is supplied is 8 and labor demanded is only 3, the excess 5 labor is unemployed in this market.
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