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ECON 101 Study Guide - Quiz Guide: Minimum Wage Law, Demand Curve, Economic Surplus

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turquoisegnu128
24 Oct 2018
School
UBC
Department
Economics
Course
ECON 101
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All

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ECON 101 Full Course Notes
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ECON 101 Full Course Notes
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Document Summary

Review questions # 3 (chapters 7 - 9: market research has revealed that demand for labor in vancouver is given by w. = 200 5l and the supply is given by w = 5 + l, where w = wage rate and l = Labor hour: calculate the equilibrium w and l of this market, the government thinks that the equilibrium wage is too low and wants to protect the workers by setting minimum wage at /hr. Solution: at equilibrium, 200 5l = 5 + l or, l* = 65/2 and. W* = 75/2 (b) since wmin > w*, it is binding and so will affect the labor market. , ld = 30 and ls = 45 (note these values can be found by plugging w = into demand and supply equations). Thus unemployment = ls - ld = 15. S d = 50ls =45ld=30 l* =65/2 w* =75/2200405unemployment35(c) before minimum wage law:

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Related Questions

Assume production in an economy takes place according to Y = 200-L

and that labor is supplied according to L* = (W/P)^2 where W is the nominal wage and P is the price level meaning that W/P is the real wage.

There is no government in this economy and so G = T = 0. Consumption is given by: C = 600 + 0.5Y - 500r and investment by: I = 500 - 500r

Finally, money demand is even by Md P = Y - 2000r In this question we solve for equilibrium in period one. Assume that in this period the economy is in long-run equilibrium.

(a) Find the equilibrium real wage, level of employment, and output for this economy.

(b) Assume that the money supply is given by M = 1800 and find the equilibrium real interest rate, levels of consumption and investment, the equilibrium price level, and the nominal wage.

Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and employment in the covered and uncovered sectors if we assume to start that each of the two sectors - I and II - employs workers who are equally skilled, with each sector having a labor demand curve given by w = 12 - 0.1L (where L = the number of hours of labor) and with each sector initially facing a labor supply curve given by w = 0.1L? This will allow you to specify the initial equilibrium wage rates in each of the two sectors. Then assume that a government subsidy is given in the covered sector I of $2 per hour (while the other sector II gets no subsidy).

Consider an economy with a representative consumer like the one described above, and a representative firm like The production function of the firm is given by zF (K, N) where: F (K, N) = KαN β and α + β < 1.The firm can hire workers in the labor market at a wage w and can rent capital market at a rental rate r (that is, the firm can rent K units of capital for which it would have to pay rK). For this problem assume that there is one unit of capital owned by a foreign investor. The investor’s capital supply is perfectly inelastic (that is she will supply one unit of capital at any rental rate).

a) (2.5 points) The equilibrium rental rate must be such that the demand and supply of capital are equalized. Find the equilibrium rental rate. Hint: You can express the equilibrium rental as a function of the wage. For this is is useful to use the FOC of the firm with respect to capital.

b) (2.5 points) The equilibrium wage must be such that the demand and supply of labor are equalized. Find the equilibrium wage. Hint: You can get an easier expression for the labor demand when you use the labor demand as a function of capital (obtained by combining the firm’s FOC) and set capital to its market clearing value. Then you can solve for the wage. Remember to replace by the equilibrium interest rate from the previous point.

c) (2.5 points) With the equilibrium prices solve explicitly for the equilibrium labor. Hint: You can get a better expression for the equilibrium labor using the labor supply and replacing by the wage you obtained above. d) (2.5 points) In equilibrium, what happens to the wage, interest rate, labor and consumption when the government increases the labor taxes? Hint: Find out first what happens to the wage, and then use your result for the equilibrium interest rate to find out what happens to that variable. The effect on labor can be obtained directly from your answer to (c) or from the FOC of the firm with respect to labor. Finally, get the effect on profits before finding out the effect that extra taxes have on consumption.