Equilibrium Price
Autor: Mohd Firdaus • May 16, 2016 • Course Note • 758 Words (4 Pages) • 757 Views
Answer
Question A.
Equilibrium Price (Wages)
LD = 120-10W LS = 20W =LD=LS
| Equilibrium quantity of Labor:
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The impact minimum wages of RM 3.35 per hour on the free market
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The impact of minimum wage cause of excess labor Demand 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
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There is an excess supply of 30 million person hours of labor. The impact would be unemployment when the minimum wages is at RM5
- Graph
[pic 1][pic 2]
Question C. [pic 3]
Worker’s and producer’s surplus before the minimum wage change
[pic 4][pic 5]
[pic 6]
[pic 7][pic 8][pic 9]
[pic 10][pic 11]
[pic 12]
[pic 13]
Producers Surplus @ RM4 | Worker Surplus @ RM4 |
Area (ABE) ½ (12 – 4)(80) | Area (ACE) ½ (4)(80) |
½ (8)(80) | ½ (320) |
½ (640) | = 160 |
= 320 | |
Consumer’s and Producer’s surplus after the minimum wage change[pic 14][pic 15][pic 16]
[pic 17]
[pic 18]
[pic 19][pic 20][pic 21]
[pic 22][pic 23]
Producers Surplus @ RM5 | Worker Surplus @ RM5 |
Area (ABC) ½ (12-5)(70) ½ (7)(70) ½ (490) = 245 | Substitute 70 in Ls 70=20w W=3.5 WS1=(5-3.5)*70=RM105 WS2=0.5*(3.5)*(70)=RM122.5 Total WS= RM105+122.5=227.5 |
Comment
Based on the depth thinking, with the gain of minimum remuneration of RM5, the producer’s excess is in region ABC. It clearly shows that the proletarian lose the area H. However those who are still workings getting higher earnings. The consumer /proletarian surplus growth for those that are able to still find the business, however not everyone is able to take the advantage of this increment. The employment fall by 10 million people per hours. The unfortunate like unskilled workers lose their jobs would be better off without the minimum wage increase, since they can’t partake in the newly increased worker’s surplus.
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