Suppose there is a competitive market for retail workers at a large shopping mall that is large enough to constitute its own labour market. The labour demand curve is QD = 1000 - 20w). The labour supply curve is QS = 400 + 40w). Suppose that a union now successfully organizes the workers at this mall and obtains a wage rate of $11 but does not affect the demand curve). The number of unemployed workers in this mall labour market becomes

Question

Quizplus · Accepted Answer

Before the union, the equilibrium wage rate would have been found where the labour demand and labour supply curves intersect:

1000 - 20w = 400 + 40w

600 = 60w

w = 10

Thus, the equilibrium wage rate without the union was $10.

With the union, the wage rate is $11. This is above the equilibrium wage rate, and therefore we would expect a surplus of labour (i.e. unemployment) to develop. To find the number of unemployed workers, we can simply subtract the quantity of labour supplied at the new wage rate from the quantity of labour demanded at that wage rate:

QD = 1000 - 20w = 1000 - 20(11) = 780

QS = 400 + 40w = 400 + 40(11) = 840

The quantity of labour supplied exceeds the quantity demanded by 840 - 780 = 60, so there are 60 unemployed workers.

Suppose There Is a Competitive Market for Retail Workers at a Large