1a. If the market's labor demand and supply functions were instead given by of LD=260-w and...
1a. If the market's labor demand and supply functions were instead given by of LD=260-w and labor supply function of LS=40+10w, what would the equilibrium wage be? (Answer format is 35)
1b. What would be the equilibrium labor quantity?
1c. The government again imposes a payroll tax of 10%, and we will again think in terms of the wage paid by employers. What is the new equilibrium wage?
(Answer format is 35.8) Round to 1 decimal place, if necessary.
1d. What is the new equilibrium labor quantity used?
Homework Answers
1.
a.
Equilibrium:
LD = LS
260 - w = 40 + 10w
220 = 11w
Equilibrium wage = 20.
b.
Equilibrium quantity = L = 40 + 10(20) = 240.
c.
With payroll tax of 10%:
Labor demand = LD = 260 - w(1.10)
Labor Supply: LS = 40 + 10w
Equilibrium after payroll tax:
LD = LS
260 - 1.1w = 40 + 10w
220 = 11.1w
Equilibrium wage = 19.82.
d.
Labor used = 40 + 10(19.82) = 238.2.
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