What are the resulting values of employment

Reference no: EM13199100

Consider an economy in which the marginal labor MPN is MPN= 309-2N, where N is the amount of labour used. The amount of labor supplied, NS, is given by NS=22+12w+2T, where w is the real wage and T is a lump-sump tax levied on individuals.
a. Use the concepts of income effect and substitution effect to explain why an increase in lump-sum taxes will increase the amount of labor supplied.
b. Supposed that T=35. What are the equilibrium values of employment and the real
wage?
c. With T remaining equal to 35, the government passes minimum-wage legislation that requires firms to pay a real wage greater than or equal to 7.

d. What are the resulting values of employment and the real wage.

Reference no: EM13199100

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