Consider a market that has a labor demand function of LD=440-10w and labor supply function of LS=220+w. Find the equilibrium wage

1a. Consider a market that has a labor demand function of LD=440-10w and labor supply function of LS=220+w. Find the equilibrium wage. (Answer format is 35)

b. Now find the equilibrium labor quantity.

c. The government imposes a payroll tax on this market of 10%. If we think of the tax in terms of the wage paid by employers, what are the new labor demand and supply functions?

d. What is the new equilibrium wage?

(Answer format is 35.2) Round to 1 decimal place, if necessary.

e. How much labor is now used?

Solutions

Expert Solution

Hi! Welcome to Chegg!

Equilibrium:

LD = LS

440 - 10w = 220 + w

220 = 11w

Equilibrium wage = 20.

Equilibrium quantity = L = 220 + 20 = 240.

With payroll tax of 10%:

Labor demand = LD = 440 - 10w(1.10) = 440 - 11w

Labor Supply: LS = 220 + w

Equilibrium after payroll tax:

LD = LS

440 - 11w = 220 + w

220 = 12w

Equilibrium wage = 18.33.

Labor used = 220 + 18.33 = 238.33.

Rahul Sunny answered 1 year ago

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