Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 − 5W. The government has passed a law that subsidizes wages by $1 per hour. The equilibrium wage and quantity of labor with the subsidy is:
A) $4 and 15 workers, respectively.
B) $2.5 and 12.5 workers, respectively.
C) $3.5 and 17.5 workers, respectively.
D) $3.5 and 10 workers, respectively.

Question

Quizplus · Accepted Answer

With the subsidy, the effective wage for employers is W - 1. Setting Qs = Qd with the subsidy: 5(W) = 30 - 5(W - 1). Solving gives W = $3.5 and Q = 17.5 workers.

Suppose That the Market Labor Supply and Labor Demand Equations