Question

The graph describes the labor market on Sandy Island. Real wage rate (dollars per hour) In addition, not shown in the graph, a survey tells us that when Sandy Island is at full employment, people spend 2,000 hours a day in job search. What is the full-employment equilibrium real wage rate and quantity of labor employed? What is the natural unemployment rate? The full-employment equilibrium real wage rate is $5 an hour The full-employment equilibrium quantity of labor employed is 8 hours per day >>> Remember that the quantity given on the x-axis is in thousands of hours. 1 LD 12 percent 6 8 9 10 11 Labor (thousands of hours per day) The natural unemployment rate is >>> Answer to 1 decimal place. Enter your answer in each of the answer boxes

Answer 1

Full employment equilibrium is attained at the intersection of labor demand and labor supply curve.

The given figure shows that labor demand (LD) and labor supply (LS) curves are intersecting each other corresponding to real wage rate of $5 per hour and labor quantity of 8,000 hours per day.

So,

The full employment equilibrium real wage rate is $5 an hour.

The full employment equilibrium quantity of labor employed is 8,000 hours per day.

So, at full employment,

Quantity of labor employed = 8,000 hours per day

At full employment, people spend 2,000 hours a day in job search.

Job search indicate unemployment.

So, at full employment,

Quantity of labor unemployed = 2,000 hours per day

Labor force = Quantity of labor employed + Quantity of labor unemployed = 8,000 + 2,000 = 10,000

At full employment,

Unemployment rate = [Quantity of labor unemployed/Labor force] * 100

Unemployment rate = [2,000/10,000] * 100 = 20%

The unemployment rate at full employment is 20%.

As we know that the unemployment rate at full employment is the natural unemployment rate.

So,

The natural unemployment rate is 20.0 percent.