Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 1

Suppose the demand for labor is given by
L =-50w + 450
and the supply is given by
L = 100w
where L represents the number of people employed and w is the real wage rate per hour.
a. What will be the equilibrium levels for w and L in this market?
b. Suppose the government wishes to raise the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? What will the new equilibrium level of employment be? How much total subsidy will be paid?
c. Suppose instead the government declared a minimum wage of $4 per hour. How much labor would be demanded at this price? How much unemployment would there be?
d. Graph your results.