MT445 Unit 3 Assignment: Effects on Market Equilibrium, Elasticity

This microeconomics assignment analyzes the concepts of elasticity and labor market equilibrium. It explores the price elasticity of demand and supply in both the short and long run, examining factors that influence equilibrium wage rates and employment levels. The assignment also delves into the calculation of total revenue product and marginal revenue product, comparing them with total and marginal costs to determine the optimal quantity of labor for profit maximization. The student answers questions on gasoline demand elasticity, supply elasticity, the upward sloping labor supply curve, and the effects of changes in resource prices and product demand on labor market equilibrium, providing explanations and calculations to support their analysis. The assignment adheres to APA format and addresses the effects of changes in demand and supply on market equilibrium, as outlined in the course objectives.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Student ID

1MICROECONOMICS
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................2
Answer 3..........................................................................................................................................2
Answer 4..........................................................................................................................................2
Answer 5..........................................................................................................................................3
Reference.........................................................................................................................................4

2MICROECONOMICS
Answer 1
Gasoline’s price elasticity of demand in the long run is more elastic than in the short run
(Jawad et al., 2018). This is because gasoline is necessary product and chances of discovery or
invention of any substitute product of gasoline in short run is less than in long run and thus it is
the main reason of more price elasticity demand for gasoline in the long run.
Answer 2
Price elasticity of supply in the long run is more than in the short run because in the long
run the factors are variable and thus all factors can be used efficiently which is not possible in the
short run (Mason & Roberts, 2018). Therefore, in the long run by manipulating factors of
production any level of supply can be produced which is not possible in the case of short run and
thus allowing firms to respond more to the change of price.
Answer 3
Supply curve for labor depicts the availability of labor in the market. The supply curve
shows the combination point of wage rate and quantity supplied of labor in the market. Thus, in
labor market, labor is the product and wage rate is its price (Carvajal, 2018). Therefore,
according to supply theory with rise in price supply of a product increases. Similarly, for rise in
wage rate supply of labor increases in the market and thus it causes an upward sloping supply
curve.
Answer 4
(a) The initial equilibrium wage rate and employment level are f unit and $b respectively.

3MICROECONOMICS
(b) With the decrease in price of a substitute resource, the company would purchase more of
substitute resources and less of labor. Thus labor demand decreases in this case. Therefore, the
new equilibrium employment and wage rate level are e unit and $c respectively.
(c) The demand of final product has increased and as a result, the price of the product will
increase. Therefore, the firm will produce more to gain more profit and thus it will hire more
labor. Consequently, the labor demand increases and demand curve shifts to D3 Therefore, the
new equilibrium wage rate and employment level are $a and g unit respectively.
(d) The industry is dominated by non-union workers and thus in this industry wage rate is
decided by free market forces (Muir & Salignac, 2017). On the other, there is another industry
which is dominated by similarly skilled union workers and thus in this industry wage rate is
negotiated by the union. Consequently, the wage rate in the non-union workers is lesser than in
the union workers industry.
Answer 5
(a) The total revenue product and marginal revenue product is given in table 1
Table 1: Cost and Revenue

4MICROECONOMICS
Source: (Created by the Author)
(b) At the wage rate of $15 per hour the amount of labor that is to be hired is 4. This is because a
firm tries to maximize its profit by employing 4 number of labors by equating marginal cost
(MC) with marginal revenue (MR). As per the above table, MC equates at labor unit 4. At this
point MR is close to the MC.
Reference
Carvajal, M. J. (2018). A theoretical framework for the interpretation of pharmacist workforce
studies throughout the world: The labor supply curve. Research in Social and
Administrative Pharmacy, 14(11), 999-1006.
Jawad, M., Lee, J. T., Glantz, S., & Millett, C. (2018). Price elasticity of demand of non-cigarette
tobacco products: a systematic review and meta-analysis. Tobacco control, 27(6), 689-
695.
Mason, C. F., & Roberts, G. (2018). Price elasticity of supply and productivity: an analysis of
natural gas wells in Wyoming. The Energy Journal, 39(Special Issue 1).
Muir, K., & Salignac, F. (2017). Can market forces stimulate social change?: A case example
using the national disability insurance scheme in Australia. Third Sector Review, 23(2),
57.