Labor demand: Ld = 210 – 2W Labor supply: Ls = 120 + W W =...

Labor demand: L^d = 210 – 2W

Labor supply: L^s = 120 + W

W = the wage rate.

If the government sets the minimum wage rate at $40 per hour, L^d or employment will decline by ___ (compare with equilibrium employment).

Select one:

A. 5

B. 10

C. 15

D. 20

E. 25

Solutions

Expert Solution

Initially, the equilibrium wage was,

210-2W =120+W

W = 30.

The employment level was = 210-2*30 = 210-60 =150.

After the minimum wage, the supply will be more than demand. The emplyed people would equal to the demand of workers at that wage rate.

Hence employment now = 210-2*40 =210-80 = 130.

Hence unemployment increased by 150-130 =20.(D).

Rahul Sunny answered 1 year ago

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