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Consider a labor market

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Question 1:

Consider a labor market where the current equilibrium wage rate (W) is S5 and there are 50,000 individuals employed. Assume that the elasticity of demand for labor (ED) is equal to -0.2 and that the elasticity of supply (Es) is equal to 0.1. Now, if a minimum wage law is passed that requires all employers to pay wages of at least S6, then:

A. How many individuals will be unemployed as a result of the minimum wage law (note, unemployment is defined as the difference between the number seeking employment and the number actually employed)?

B. Considering the 50,000 individuals who were initially employed, what is the overall impact on these suppliers of labor services (i.e., the change in producer surplus)?

C. What is the impact on the employers of labor services (i.e., the change in consumer surplus)?

D. What is the overall impact on society (i.e., change in total surplus)?

Question 2:

Students at the State University are currently renting 15,000 apartment units at an equilibrium rental rate (P*) of $300 per unit. The apartment Supply is Qs = 7500 + 25 P. You know the following information:

  • The elasticity of demand (ED) for apartments is -0.25
  • The average student's current income is S500
  • The income elasticity of demand (Emc) for apartments is 0.1

Now, if the average student's income increases from the current S500 to S1000, what will be the new equilibrium price and quantity of apartments?

Reference no: EM13836897

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