Question

BIS 200/BBUS 220: In-Class Assignment 4

Due: Wednesday, May 29

1. Suppose the demand for labor is given by LD = 3000 − 100W and the supply is given by LS = 200W . (NB: W denotes hourly wage, L denotes # of workers.)

• (a) Graph the labor supply and demand curves. 


• (b) What is the equilibrium wage and employment level? 


• (c) Suppose that employers are now required to provide employees with a benefit that adds an additional hourly cost of $2 to employing each worker. Workers value the benefit at cost ($2 an hour).

1. What is the new equilibrium wage and employment level? 


2. What is the statutory incidence of the mandate cost? 


3. What is the economic incidence of the mandate cost? How much do workers and firms benefit? 


4. Is there any deadweight loss as a result of this policy? How much? 


• (d) Return to the original supply and demand setup. Suppose instead that employers are now required to provide employees with a benefit that adds an additional hourly cost of $3 to employing each worker, and that workers do not value the benefit at all.

1. What is the new equilibrium wage and employment level? 


2. What is the statutory incidence of the mandate cost? 


3. What is the economic incidence of the mandate cost? How much do workers and firms benefit? 


4. Is there any deadweight loss as a result of this policy? How much? 


Answer 1

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