Question

demand and supply

Question 7 1 points Save Answer Consider the following labor market Labor demand: LD = ad-w Labor supply: LS = as - 2w where w is the wage, L is the number of workers, ap and as are constants Now suppose that business owners predict low sales next year so they reduce hiring and as a result, ap=70,000 and as=10,000. But in this scenario wages are totally rigid and cannot adjust this year from its original level (i.e. when ap=100,000 and as=10,000): find the quantity demanded (LD) and quantity supplied (Ls) for labor, given this setting. OLD = 20,000 ; Ls = 40,000 Lp = 40,000; Ls = 50,000 LD = 50,000;L5 = 80,000 LD = 40,000; Ls = 70,000

Answer 1

Initially the market has

Ld = 100000 - w and Ls = 10000 + 2w

This gives

100000 - w = 10000 + 2w

w* = 90000/3 = $30000

Now the situation is changed so we have

Ld = 70000 - w and Ls = 10000 + 2w

At the wage rate w = 30000 which is fixed

Ld = 70000 - 30000 = 40000 units and Ls = 10000 + 2*30000 = 70000 units

Select Ld = 40000 and Ls = 70000 (last option)