Predict how each of the following events will raise or lower the equilibrium wage and quantity...

Predict how each of the following events will raise or lower the equilibrium wage and quantity of coal miners in West Virginia. (Do wages increase or decrease? Does the market quantity of workers increase or decrease?) [8 points]

a. The price of oil rises

b. New coal-mining equipment is invented that is cheap and requires few workers to run

c. Several major companies that do not mine coal open factories in West Virginia, offering a lot of well-paid jobs.

d. Government imposes costly new regulations to make coal-mining a safer job.

Solutions

Expert Solution

In each case, D0 and S0 are initial labor demand and supply curves intersecting at point A with equilibrium wage rate P0 and quantity of labor Q0.

(a)

Higher price of oil, a substitute to coal, will increase demand for coal, shifting labor demand curve rightward, increasing both wage rate and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher wage rate P1 and higher quantity Q1.

(b)

Labor-saving technological progress will decrease demand for coal miners, shifting labor demand curve leftward, decreasing both wage rate and quantity.

In following graph, D0 shifts left to D1, intersecting S0 at point B with lower wage rate P1 and lower quantity Q1.

(c)

Opening up of new coal mines will increase demand for coal miners, shifting labor demand curve rightward, increasing both wage rate and quantity.

In following graph, D0 shifts right to D1, intersecting S0 at point B with higher wage rate P1 and higher quantity Q1.

(d)

Higher job safety will increase labor supply for coal mining, shifting labor supply curve rightward, decreasing wage rate and increasing quantity.

In following graph, S0 shifts right to S1, intersecting D0 at point B with lower wage rate P1 and higher quantity Q1.

Rahul Sunny answered 1 year ago

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