w = 100 - L
w = L
a. Which is demand and which is supply?
b. Graph the demand and supply equations.
c. Find the equilibrium wage and employment level.
d. Compute the worker and firm surplus.
2. Suppose now that the government charges a $10 per unit of labor payroll tax to be collected from the firms.
a. Rewrite the supply and/or demand equations to reflect this policy.
b. Solve for the new equilibrium wage and employment level.
c. Compute the new consumer and producer surpluses and indicate how the tax is being shared between workers and firms. Generally, what determines how such a tax will be "shared"? In what circumstances will the tax not be shared?
d. Find the amount of revenue being taken in by the government
from this policy.
3. Suppose now that the demand in number 1 above had been w=150 - 2L.
a. Using the original supply and this new demand, solve for the equilibrium price and quantity. Is it the same as in number 1? Graph the new demand curve along with the original supply curve.
b. Which curve is more elastic at the equilibrium point, the one in number 1 above or this new demand curve?
c. Compute the consumer and producer surplus associated with this new demand curve and the original supply. How are these values different from number 1 above?
d. Now suppose that the tax described in number 2 is again imposed. Using the new demand and the supply curve that reflects the tax, find the equilibrium wage and employment level.
e. Compute the consumer and producer surplus, the government revenue, and the deadweight loss. How do these values compare to those found in number 2?
4. Suppose that labor demand and supply are given by the following expressions:
w = 100 -2L
w = L
a. Suppose that a minimum wage is set at $50. Find the unemployment introduced by this minimum wage and indicate how many workers will be displaced (assume that L is measured in terms of full-time workers for simplicity) as a result of the policy.
b. More Difficult: Can you determine the deadweight loss from this minimum wage policy? Explain.