[As per HOMEWORKLIB POLICY & guideline the first-question with four subparts are answered below]
Q.2)
Subpart a)
The condition of such is (Supply = Demand)
Supply = Demand
L = 500 – L
2L = 500
L = 500/2 = 250
Now, by putting this value in the supply or demand function we will get the wage rate or price.
Supply: w = L
= 250
Answer: equilibrium labor unit is 250 and wage rate is 250.
Subpart b)
Regarding the consumer surplus (CS):
It should be on demand function.
w = 500 – L
Now, if (L = 0); w = 500 – 0 or w = 500
Now, if (L = 250); w = 250 [as per the equilibrium condition as above]
Consumer surplus = 0.5 × (difference in w) × (difference in L)
= 0.5 × (500 – 250) × (250 – 0)
= 0.5 × 250 × 250
= 31,250 (Answer)
Regarding the producer surplus (PS):
It should be on supply function.
w = L
Now, if (L = 0); w = 0
Now, if (L = 250); w = 250 [as per the equilibrium condition as above]
Producer surplus = 0.5 × (difference in w) × (difference in L)
= 0.5 × (250 – 0) × (250 – 0)
= 0.5 × 250 × 250
= 31,250 (Answer)
Subpart c)
If (w = 400); consumer surplus would be as below
It should be on demand function.
w = 500 – L
Now, if (L = 0); w = 500 – 0 or w = 500
Now, if (w = 400); 400 = 500 – L; L = 100
Consumer surplus = 0.5 × (difference in w) × (difference in L)
= 0.5 × (500 – 400) × (100 – 0)
= 0.5 × 100 × 100
= 5,000 (Answer)
If (w = 400); producer surplus would be as below
It should be on supply function.
w = L
Now, if (L = 0); w = 0
Now, if (w = 400); L = 400
Producer surplus = 0.5 × (difference in w) × (difference in L)
= 0.5 × (400 – 0)) × (400 – 0)
= 0.5 × 400 × 400
= 80,000 (Answer)
Subpart d)
Deadweight loss = (CS + PS) at equilibrium – (CS + PS) at minimum wage
= (31,250 + 31,250) – (5,000 + 80,000)
= 62,500 – 85,000
= 22,500 (Answer)
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