Reference no: EM13839956
The labor demand and supply curves are respectively: Ld = a+b·w and Ls = c+d·w, where a, b, c, and d are parameters of the model, w is the wage, Ld and Ls denote labor demand and supply, respectively.
A. What are the values of the parameters c and d that make the supply curve upward- sloping and passing through the origin in the (L, w) space?
B. What are the values of the parameters a and b that make the demand curve downward- sloping in the (L, w) space?
C.Supposea>0,c=0,andd>0. Whatistheconditionontheparameterbthat guarantees that an equilibrium in the labor market exists?
D. Suppose a = 5, c = 0, b = 1, and d = 2. Calculate equilibrium labor and wage;
E. Suppose the government levies a tax on the labor income earned by the worker. How does the labor demand and/or supply curve change? Write down the new labor demand and/or supply curve as a generic function of the labor income tax, ?w;
F. Suppose now that the labor income tax is ?w = 0.2. Calculate the new equilibrium labor and wage;
G. Suppose now that the labor income tax is ?w = 1. Calculate the new equilibrium labor and wage.
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