Question

Assume that the labour demand equation for a fictional country is Lo = 90-2(w), where w is the wage per hour worked. Also, assume that the labour supply equation for that country is Ls = 0.5(w). Instructions: Round your answers to the nearest whole number. a. The equilibrium wage is $ , and the equilibrium quantity of labour employed is workers. b. At the equilibrium wage, people are unemployed. c. If the supply of workers increased, the number of unemployed would: O stay the same as long as the wage is free to quickly adjust. O decrease. O increase.

Answer 1

The equilibrium in the labor market occurs when labor demand (Ld) equals Labor supply (Ls).

Thus we have, 90 - 2w = 0.5w

or, 2.5w = 90

or, w = 36

and L = 0.5*36 = 18

a) The equilibrium wage is $36 and the equilibrium quantity of labor employed is 18 workers.

b) At the equilibrium wage 0 people are employed as the labor demand exactly matches the labor supply.

c) If the supply of workers increase, there will be more people to work than the number of workers demanded, The number of unemployed would thus increase.