1) Suppose that Labor Supply is linear with exactly 0M people willing to work at a wage of $0 and 5M more people willing to work for each $1 increase in the wage. Labor Demand was such that the equilibrium wage rate was $20. Suppose that a negative shock hits labor demand so that the new [inverse] Labor Demand Curve has a vertical intercept at 110M and slope of -0.5. If downward wage rigidity prevents the wage from falling below $20, then how many people will be unemployed?
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1) Suppose that Labor Supply is linear with exactly 0M people willing to work at a wage of $0 and 5M more people willing to work for each $1 increase in the wage. Labor
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- 7. Consider a competitive labor market where the market demand and the market supply are given initially by QD = 1000 – 50P and Q$ = 50P, respectively. The quantity of labor is measured in number of people (assume that people are perfectly divisible) and prices are measured in RMB. (a) Suppose there is a recession and the demand for labor is reduced by 200 workers at every price level. Find the number of people who are unem- ployed as a result. (b) Suppose the government wants to help the newly unemployed by paying them 50% of the pre-recession equilibrium wage. What would be the total cost of this program to the government? How does the program affect the post-recession aggregate surplus? Is there a deadweight loss associated with this program? (c) Suppose the government wants to reduce unemployment, so it is consid- ering using the money that would have been spent on the unemployment benefit program on a wage subsidy program instead. In particular, the government will reimburse the…E1 3. [Employment and Unemployment] Suppose a country has a working-age population of 500people. The demand and supply functions of its labor market are:w=300-0.5L w=60+0.1Lwhere w is the wage, L is the quantity of labor. The labor market has search friction so thatthose that are looking for a job may not immediately find one even when there are openings.Specifically, Assume the number of job matches (i.e. employment) is given by: 0.8L(a) Find the equilibrium wage and the actual number of employed people. Calculate thelabor force participation rate and unemployment rate. (b) The COVID-19 pandemic lowers the labor demand, and the new labor demand becomesw=240-0.5L. Assume that the wage can adjust quickly, find the equilibrium wage and theactual number of employed people during the pandemic. (c) Briefly explain in words, and with a specific example of each, the difference betweenstructural and frictional unemployment.Consider the early 1970s when an oil price shock roiled the U.S. economy, including the labor market. Consider an automotive company that has been negatively impacted by the sudden increase in oil, and the lasting impact it had on automobile demand. (a) How might this shock impact the demand and supply for labor in the automobile company? Illustrate the labor demand and supply curve for the effect of an oil price shocks on automobile demand. Clearly label the curve, including axis. (b) Assume that employees at the automobile company are unionized. Explain how this would change wages and labor demand? Illustrate this effect of unionized work on the labor demand and supply curve, still assuming the oil price shock.
- Suppose that the labor demand for restaurant waiters in a small city is LD = −10 + 20w wherew is wage in dollars per hour.1. Derive the formula of the wage-elasticity of labor demand.2. Solve for the wage-elasticity of labor demand at the following wage rates below. Tell whetherlabor demand is elastic, inelastic, or unit elastic at each given wage rate.a. w = 4b. w = 61. Consider a static labour supply model for an individual. Assume that the person works a positive number of hours. Assume that the utility function is of the following form: U=x0.5 +8(T-h)(0.5) where x is consumption and his hours of work, and 8 is a parameter of the utility function. The person is paid a wage of w for each hour worked. The person has no other source of income other than employment earnings. Assume that the price of x equals 1. a) Specify the utility maximization problem, write down the Lagrange function, and solve for the first order conditions. b) Solve for the MRS condition between consumption and hours of work. c) Assume that 8=2 if the person has a child living at home, and 8=1 otherwise. Explain (and either show mathematically or graphically) how this will affect the optimal number of hours of work of the person.Suppose aggregate labour supply is measured as aggregate number of hours worked (L) given wage (w). A. Graph the labour supply if L = 3w. Write the formula for the (total) elasticity of labour supply in this case and substitute out L. After simplifying, the (total) elasticity of labour supply is B. Graph the labour supply if L = 16w. Write the formula for the (total) elasticity of labour supply in this case and substitute out L. After simplifying, the (total) elasticity of labour supply is C. Graph the labour supply if L = 3w - 3. Write the formula for the (total) elasticity of labour supply in this case and substitute out L.
- Suppose the marginal revenue from search isMR = 50 - 1.5wwhere w is the wage offer at hand. The marginal cost of search isMC = 5 + wa. Why is the marginal revenue from search a negative function of the wage offer at hand?b. Can you give an economic interpretation of the intercept in the marginal cost equation; in other words, what does it mean to say that the intercept equals $5? Similarly, what does it mean to say that the slope in the marginal cost equation equals one dollar?c. What is the worker’s asking wage? Will a worker accept a job offer of $15?d. Suppose UI benefits are reduced, causing the marginal cost of search to increase to MC = 20 + w. What is the new asking wage? Will the worker accept a job offer of $15?Please adjust the graph to show the impact of a recession, where the theoretical market equilibrium wage rate falls to $10/h. Then, answer the two questions assuming wages are sticky downward. Wage rate (per hour) 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 0 S 1 2/ D 6 7 8 9 10 11 12 13 14 15 2 3 4 5 Labor quantity (in millions of workers) increase or decrease in unemployment After the effects of the recession are felt, what is the size of the increase or decrease in unemployment? S = What is the actual wage rate that predominates in the market? million peopleA production function has two inputs: domestic labor (Edom) and foreign labor (Efor.) The market is originally in equilibrium as shown below, and the production budget is fixed. Suppose a shock occurs that increases the marginal product of domestic labor. Assuming no changes in domestic or foreign wages, what will happen to the quantities of domestic and foreign labor employed? Initial long run equilibrium (prior to shock): a. The firm will hire more domestic workers and fewer foreign workers. b. The firm will hire more foreign workers and fewer domestic workers. c. The firm will hire more domestic workers but will continue to hire the same number of foreign workers. d.The firm will hire more foreign workers but will continue to hire the same number of domestic workers.
- Consider an economy which is divided into different sectors, each producing a differentiated product. Workers in each sector are organized in a trade union which monopolizes the supply of labour to all firms in the sector. Because of its monopoly position, the trade union in each sector may dictate the nominal wage rate to be paid by employers in that sector. However, employers are free to choose the level of employment. For simplicity, assume that the number of working hours for the individual worker is fixed, so total labour input is proportional to the number of workers employed. Workers in sector are educated and trained to work in that particular sector, so they cannot move to another sector to look for a job. If a worker fails to find a job in his sector, he therefore becomes unemployed. His real income will then be equal to the real rate of unemployment benefit . An employed worker in sector earns the real wage where is an index of the general price level, so his net income…The labor supply is perfectly inelastic with LS = 5 and the labor demand is based on the competitive model. The marginal productivity is MPL = 10 – L where L is measured in hours worked. Each unit sells for a price of $4. What is the equilibrium wage in this labor market? $__/hr) Suppose there are two inputs in the production function-labor and capitaland that these two inputs are perfect substitutes. Suppose that the price of capital is 750 GHC per machine per week and that the weekly salary of each . worker is 300 GHC . i) Draw the isocost line ii) With the aid of a graph, explain the effect of a wage decrease on flrm-level employment and output holding initial cost ouday constant.