5. Consider an economy in which the marginal product of labour, MPN, is given by MPN-309-2N, where N is the amount of labour used. The amount of labour supplied, NS, is given by NS-22+12w+27, where w is the real wage and 7 is a lump-sum tax levied on individuals.

a. Use the concepts of income effect and substitution effect to explain why an increase in lump-sum taxes will increase the amount of labour supplied.

b. Suppose that 7=35. What are the equilibrium val- ues of employment and the real wage?

e. With 7 remaining equal to 35, the government passes minimum-wage legislation that requires firms to pay a real wage greater than or equal to 7. What are the resulting values of employment and the real wage?