The demand and supply of U.S. labor are described by the following equations: Q_

Question

The demand and supply of U.S. labor are described by the following equations: Q_D = 450 - 45P Q_s = -180 + 60P, where Q is the quantity in millions of workers' hours and P is dollars per hour. Find the equilibrium price and quantity of labor. Suppose that the U.S. government passes a minimum wage law, where the minimum wage is $7 per hour. How many worker hours are available when the minimum wage is $7 per hour? How many worker hours will actually be employed? Calculate consumer and producer surplus after the minimum wage is imposed. Does this minimum wage benefit workers overall? Which workers don't benefit from this policy? Mark this carefully on a graph of the U.S. labor market. Many tasks that were once performed by U.S. workers have been outsourced to China in recent years. In response to human rights pressure, the Chinese government requires that its factories increase safety precautions and pay Chinese workers a higher wage. How does this affect the unemployment in the U.S. labor market originally caused by the minimum wage? Explain and show graphically.

Explanation / Answer

a) At Equilibrium,

Quantity demanded = Quantity supplied

450 - 45P = (-) 180 + 60P

630 = 105P

  P = $ 6

  Quantity (Q) = 450 - 45 * 6 = 180 Millions of workers' hours.

Conclusion: a) Equilibrium Price = $ 6 per hour and Equilibrium Quantity = 180 Millions of workers' hours.

b) Number of worker hours available when minimum wage is $ 7 per hour:-

= (-) 180 + 60 P

= (-) 180 + 60 * 7

= (-) 180 + 420

= 240 Millions of workers' hours

Number of worker hours actually employed when minimum wage is $ 7 per hour:-

= 450 - 45P

= 450 - 45 * 7

= 450 - 315

= 135 Millions of workers' hours

   

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