Question

Here are listed the supply and demand schedule for labor hours in France. This country has several restrictive laws & strikes!

Wage	Quantity Supplied	Quantity Demanded
10	3,000	5,000
12	3,500	4,500
14	4,000	4,000
16	4,500	3,500
18	5,000	3,000

Identify new equilibrium price and quantity if a minimum wage law is enacted for Wage = 12 euros an hour.

What happens to the market wage if the trade union restricts the supply of labor hours to 3,000?

Identify new equilibrium price and quantity if a minimum wage law is enacted for Wage = 16 euros an hour.

Suppose that there is a labor trade union that wants to maximize the revenues of all workers. Which wage and quantity of labor hours supplied should the trade union propose?

Discuss (no computations needed): What would be the effects in the labor market of a law that restricts the workweek to 35 hours?

Answer 1

A) minimum wage is wage is the lowest wage that firm can give.tgey can't give lower wage than this but they can give higher wage.

Minimum wage set equal to 12 . At wage=12, labour demand (4500) exceeds labour supply(3500).

So firm will be willing to pay higher wage to get more labour.

As they do this labour supply expands and labour demand contracts and both labour demand become equal at wage =14.

So new EQUILIBRIUM wage=14 and quantity=4000

B)if trade union restrict labour supply to 3000, then equilibrium wage will increase to 18.

So new equilibrium wage=18

C)at w=16, there is surplus.

But wage can't be reduced ,so new equilibrium wage =18 and quantity=3500(QUANTITY that firms will demand at w=16)

D) wage. Employed workers. Revenue

10. 3000. 30,000

12. 3500. 42,000

14. 4000. 56,000

16. 3500. 56,000

18. 3,000. 54,000

As you can see the maximum revenue of all workers are 56,000 and possible wages are 14, ,16 and labours hours 4000 ,3500 respectively.

So they should propose w=14 and labour hours=4000. Because w=16 has same revenue but less employment ,so higher employment with same REVENUE will be desirable.

Firms Will be willing to pay lower wages as the same product will be finished lately which cost the firm,so labour demand decreases. And equilibrium wage decreases