1Labor Demand and Supply Table of Contents Answer 1..........................................................................................................................................2 Answer 3..........................................................................................................................................3 Answer 7..........................................................................................................................................4 Reference.........................................................................................................................................6
2Labor Demand and Supply Answer 1 Diagram 1: Laborsupply curve of Island City Source: (Created by the Author) Diagram 2: Laborsupply curve of Plain City Source: (Created by the Author)
3Labor Demand and Supply The labor supply curve of Plain City is steeper than the labor supply curve of Island City. The reasons behind this mismatch between the slopes of the supply curves of these two cities are the difference in cost of living and lack of resources (Seeley, 2017). Plain city is featureless and thus it has less resources than Island City. Therefore, cost of living is higher in the Plain City as it has to build all means of living and also depend on imports unlike Island City (Neuman et al., 2015). Therefore, wage of labor will be higher and with rise in employment the cost of expanding Plain City is more and thus labor supply curve is steeper in the case of Plain City. Answer 3 Equilibrium employment and equilibrium wage in Growville are 100, 000 and $100 respectively. Additionally, the wage elasticity of demand is -1 and wage elasticity of supply is 5.0. Therefore, with increase in labor demand by 18% the equilibrium wage of labor increases by Percenatgeincrease∈wage=Percentageincrease∈labordemand ∑ofwageelasticityofdemand∧wageelasticityofsupply ¿,Percenatgeincrease∈wage=18 (1+5) ¿,Percenatgeincrease∈wage=3% Therefore, after 18% increase in demand equilibrium wage increases to $103. Similarly, with increase in equilibrium price and demand by 3% and 18% respectively, the percentage increase in equilibrium wage is given by Percentageincrease∈equilibriumemployment=Increase∈equilibriumprice×Wageelasticityofsupply ¿,Percentageincrease∈equilibriumemployment=(3×5)%
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4Labor Demand and Supply ¿,Percentageincrease∈equilibriumemployment=15% Therefore, after 18% increase in labor demand the equilibrium employment increases to 115, 000. From the above calculations it is found that wage and employment has both increased in Growville. Therefore, with increase in income there will be more demand for houses and thus there will be rise in demand in the real estate market (Carvalho & Rezai, 2015). Subsequently, the real estate market would expand and there will be more revenue and thereby profit in the market. Answer 7 Diagram 3: Fall inequilibrium employment in City T Source: (Created by the Author) The amount of pollution generated by both the cities U and T is 100 tons. There are two firms in each of the cities and both the firms contribute equally and produce the total amount of
5Labor Demand and Supply pollution. It means the firms in cities U and T generate 50 tons of pollution each.City T implements a tax policy to reduce the pollution and owing to that the firms in the city has to reduce their production. Consequently, the pollution of City T reduced by 20% to 80 tons (Hanna & Oliva, 2015). However, the equilibrium employment reduced by (LT-LT1) as shown in diagram 3. Similarly, City U also implemented the same policy to reduce pollution. It is observed that in City U that each of the two firms reduced pollution by 20% that means each now produces 40 tons of pollution. It implies that City U produces 80 tons of pollution in total which is similar as City T. Thus, it can be inferred that equilibrium employment in City U has reduced by the amount equal to (LT-LT1).
6Labor Demand and Supply Reference Carvalho, L., & Rezai, A. (2015). Personal income inequality and aggregate demand.Cambridge Journal of Economics,40(2), 491-505. Hanna, R., & Oliva, P. (2015). The effect of pollution on labor supply: Evidence from a natural experiment in Mexico City.Journal of Public Economics,122, 68-79. Neuman,T.,Cubanski,J.,Huang,J.,&Damico,A.(2015).Therisingcostofliving longer.KaiserFamilyFoundation.www.kff.org/medicare/report/the-rising-cost-of- living-longer-analysis-ofmedicare-spending-by-age-for-beneficiaries-in-traditional- medicare. Seeley,K.(2017).Short-RunAggregateSupply/AggregateDemandandPolicy. InMacroeconomics in Ecological Context(pp. 273-294). Springer, Cham.