Question

please complete questions 30 E- H

30.Consider a labor market where the demand and supply curves for highly trained workers are given by the equations

L_D = 10 − 0.5W, L_S= 0.5W,

where L represents the number of workers, W is the wage, and the subscripts Dand S are used to distinguish between the quantity of labor demanded and the quantity of labor supplied.

30a. Find the initial market-clearing wage and employment level.

30b. Now suppose that the demand for labor in this particular occupation increases to

L_D = 12 − 0.5W.

Find the new market-clearing wage and employment level.

30c. Suppose that because of lags in the training of new workers, no new quantity of labor could be immediately supplied in response to the demand shift. With the number of trained workers fixed for the time being at the original employment level, calculate what would initially happen to the wage.

30d. If workers shortsightedly based their training plans on the new wage (computed in Question33c), find the quantity of workers that will be supplied when training is complete.

30e. Once training is complete and the newly trained workers are in the labor market, calculate what will happen to the equilibrium wage. Assume that once workers are trained, they will be extremely reluctant to leave that occupation.

30f. If workers again shortsightedly base their training plans on this new wage, find the quantity of workers that will be supplied when training is complete.

30g. Is this market moving closer to the market clearing values associated with the new demand curve?

30h. Will this market eventually converge on the wage and employment values associated with the new demand curve? How can you tell?

Answer 1

30 a. Market clearing wage at where labour demand equal to labour supply.

10-0.5w=0.5w

W=10

Market clearing labour QUANTITY=10-0.5*10=10-5=5

B with new labour demand,

12-0.5Q=0.5W

W=12

Labour QUANTITY or employment=12*-0.5*12=12-6=6

C)Original employment =5

So,

12-0.5W=5

0.5W=7

W=14

D) at W=14 ,labour supply will be,

0.5*14=7

At w=14 ,labour supply will be equal to 7.

E) 12-0.5W=7

0.5W=5

W=10

F)Labour supply according to new wage equals to 10

0.5*W=0.5*10=5

G)yes, due to existence of lag in training of new workers, limited supply of labour leads to higher wage=14, then it decrease to 10 . And same for QUANTITY limited supply leads to 5 and then Increases to 7 then 5.

H) initial Q=5 as time goes ,new labour get trained and supply increases to 6 and wage goes to 12 and converge to new equilibrium associated wage and quantity.