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During the early months of the COVID-19 pandemic, the government introduces a wage subsidy plan: a...

During the early months of the COVID-19 pandemic, the government introduces a wage subsidy plan: a per-unit subsidy.

Suppose that the pre-pandemic demand for labour was D0=1400-50w, supply was S=50w-200. There were L0 workers employed at a wage of w0 dollars per hour. Suddenly, the demand for labour declined to D1=700-50w. Without a subsidy, employment would fall to L1, The goal of the per-unit subsidy is to avoid layoffs, L=L0, even though D1=700-50w. Calculate the per-unit subsidy to achieve this goal.

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Rahul Sunny answered 2 years ago
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