Labor Supply - Labor Demand
Autor: Mohd Firdaus • May 16, 2016 • Term Paper • 1,642 Words (7 Pages) • 779 Views
SOLUTIONS
Question A.
- Equilibrium Price (Wages)
Equate LD to LS
120 – 10W = 20W |
120 = 20W + 10W |
120 = 30W |
W = 120 30 |
W = RM 4 |
Equilibrium quantity of Labor:
LS = 20W |
LS = 20(4) |
LS = 80 Million person hours |
- The impact that does a minimum wages of RM 3.35 per hour have on the free market
To see the effect of the minimum wage, plug the minimum wage into both the labor supply and labor demand to find the value at a wage of RM 3.35.
LD = 120 – 10W |
LD = 120 – 10(3.35) LD = 120 – 33.5 |
LD = 86.5 Million person hours |
Ls = 20W |
LS = 20(3.35) |
LS = 67 Million person hours |
Since labor Demand is greater than labor supply, there is an excess demand/shortage of 19.5 million person hours of labor. The impact would increase the wages rate in a free market and the market would attain its free market equilibrium.
Question B.
- The impact of the new minimum wages of RM5 on the quantity of labor supplied and demanded.
LD = 120 – 10W |
LD = 120 – 10(5) LD = 120 – 50 |
LD = 70 Million person hours |
LS = 20W |
LS = 20(5) |
LS = 100 Million person hours |
Since labor supply is greater than labor demand, there is an excess supply of 30 million person hours of labor. The impact would be unemployment when the minimum wages is at RM5
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