Please explain. There is no graph. This is all the information given. Assume tha
ID: 1116257 • Letter: P
Question
Please explain. There is no graph. This is all the information given.
Assume that the labor market is defined as follows:
QD = 40 – 2P and QS = 4P – 20. Where Q = quantity of labor and P = wage rate.
What will be the result of a government imposed minimum wage at $15?
a. The gain to those workers who keep their jobs is $50.
b. The loss to workers who no longer have a job is $100.
c. The higher wage induces more workers to enter the labor market.
d. The higher wage induces employers to use fewer workers.
e. All of the above are true.
Explanation / Answer
Answer is e. All the statements are true.
First we have to find the equilibrium wage rate and quantity.
Equate demand and supply
Qd= 40-2P
Qs=4P-20
40-2P= 4P-20
-2P-4P = -20-40
-6P=-60
P= -60/-6 =$10
The equilibrium wage rate is $10.
To find the equilibrium quantity of labor, substitute $10 in the demand or supply equation.
Substituting $10 in Qd,
40-2(10)= 40-20 = 20.
The equlibrium quantity is 20
The minimum wage is $15, substitute $15 in Qd to find the new demand quantity
40-2(15)= 40-30 = 10. The quantity of labor demanded is 10.
Substitute $15 in Qs to find the new supply quantity
4(15)-20= 60-20=40.The quantity of labor demanded is 40.
a. As the new demand for labor is 10 workers, these 10 workers will get $5 extra. Their gain is $50.
b. 10 workers will lose their jobs, their loss is 10 x $10=$100. Before the minimum wage, 20 workers were required but now only 10 workers are needed.
c and d. The statments are true since at higher quantity supplied will increase and quantity demanded will decrease.