See table, and answer each of the questions. a. If the market represented in exh
ID: 1245239 • Letter: S
Question
See table, and answer each of the questions.a. If the market represented in exhibit above is allowed to operate freely, total employment in the market will be __________________.
b. If a union raises the wage to $4, total employment in the market will be _______.
c. The approximate total surplus of labor after the union wage is _______________.
d. If the market is allowed to operate freely, total employment by the typical employer (illustrated in the right-hand panel) will be ________________.
e. If a union raises the market wage to $4, total employment by the firm (in the right-hand panel) will be ________________.
Explanation / Answer
If the market was allowed to operate freely, then the market will be at the equilibrium, where demand and supply intersect. This means total employment in the market will be at 720. Raising wage to $4, we see that the demand for labor will fall to 600 although the supply of labor will rise to something close to 800. This makes sense because higher wages makes more people want to work and firms will hire less. Total employment in the market will fall to 600. The total surplus can be two different things, which I'm not quite sure what is meant by the question (depends on what you have been learning in class or in your textbook). It can refer in this case to the surplus of labor, which is about 200 (the supply is 800 and the demand is 600). It can also refer to the consumer surplus plus the supplier's surplus (which equals total surplus). In this case, this is simply the triangle that is made by the supply and demand curve and the y axis. The demand curve looks like it will intersect the y axis at about 5, so the base of the triangle is 4 and the height is 720. Using (1/2)bh to find the area, we get (1/2)2880 = 1440. If you ask me, I think the first interpretation of the surplus makes more sense since it's much more simple and actually applies to what you guys are doing, although them saying "total surplus" instead of "surplus" makes me also think it might be the second interpretation. If the market is allowed to operate freely, total employment by a typical employer would be 12. We see this by looking at the equilibrium on the left panel and following the dotted lines, intersecting that with the MRP of the firm. Doing the same as above, except now with an MRC of 4, we see that it intersects the MRP curve at an employment level of 10. Thus, at the union wage, employment falls to 10 for a typical firm.