Given below are the demand schedule and supply schedule for thelabour market for supervisors. Remember...

Given below are the demand schedule and supply schedule for the labour market for supervisors. Remember that demand for labour represents the employers’ demand for workers, while supply represents the workers’ willingness to work. Graph the demand and supply curve on one graph and determine equilibrium in this market. State the equilibrium. Label the graph properly.

a) State the wage and quantity that establishes equilibrium.

b) Calculate the coefficient of price elasticity of demand if the daily wage goes from $230 to $270. Is elasticity at this level inelastic or elastic

Daily Wage for Supervisors	Quantity Demanded (000s)	Quantity Supplied (000s)
$200	560,000	40,000
$225	475,000	65,000
$230	375,000	100,000
$270	300,000	125,000
$300	295,000	295,000
$325	200,000	350,000
$340	100,000	465,000
$365	61,000	575,000

Solutions

Expert Solution

A. The equilibrium is at that point where quantity demanded is equal to quantity supplied. From the schedule we can see at a wage rate of $ 300 quantity demanded and supplied is equal to 295,000.

Equilibrium wage rate = $ 300

B. Price elasticity can be calculated using the following formula

Applying mid point method

P1 = $ 230, Q 1 = 375,000

P2 = $ 270, Q2 = 300,000

Plug in these values

Elasticity = - 1.39 (Elastic)

Rahul Sunny answered 2 years ago

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