Question

2. Now, go back to the original supply and demand equations: Ed 60 2*w Es =-10+5"w Redraw these on a new graph, as you did in the above question Suppose that a minimum wage of S12/hr is now imposed. a) What is the quantity demanded at this new wage? What is the quantity supplied? How many workers are hired? How many jobs are lost? b) Show all of the above on your graph. Once again, with the minimum wage in place, suppose that the demand again changes to: c) Repeat part a) d) Repeat part b).

Answer 1

2

a) Ed= 60-2*w

Es= -10+5*w

Minimum wage rate: $12/hr

Ed= 60-2*12

= 60-24

Ed= 36

Es= -10+5*w

= -10+5*12

= -10+60

Es= 50

Quantity of labor demanded= 36

Quantity of labor supplied= 50

36 workers are hired as per demand for the labor at wage rate $12/hr and 50 workers are supplied at wage rate $12/hr

b) Graph is as per below.

In the above graph it is shown that at wage rate $12/hr, Quantity of labor demanded is 36 and quantity of labor supplied is 50 which is depicted on demand and supply of labor curve and here DL is the Demand for Labor curve and SL curve is the supply of labor.

This shows supply of labor is in excess of demand of labor.

Now demand change to as per below

Ed' = 67-2*w

wage rate= $12/hr

Ed'= 67-2*12

Ed'= 67-24

Ed'= 43

c) Ed'= 43

Es= 50(It remains same as before)

Quantity of labor demanded= 43

Quantity of labor supplied= 50

d) As per above calculation new graph is as per below.

As per above graph with revised demand, quantity of labor demanded is 43 and quantity of labor supplied is still 50

This shows supply of labor is in excess in comparison of demand for labor.