1. Excess supply with union wages Consider the housing construction industry. Assume that the industry is perfectly competitive in both input and output markets. Suppose that, through collective bargaining, a labor union negotiates an industrywide wage for various kinds of labor (electricians, plumbers, and so on). In particular, it succeeds in negotiating a wage increase for carpenters from $12 to $16 per hour. The following graph shows the labor demand of an individual firm. On the following graph, show what happens at the firm level as a result of the union negotiations. r'\\ L?!" 24 -- O 20 \" Demand El 16 LI.| Supply 5 Supply LIJ 12 + g I i I 8 " I I Demand I 4 I I I O l l I | l i o 10 20 30 40 50 60 QUANTITY OF LABOR Now consider the effects of the wage change on the entire industry. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool 24- .. m m o I _. N WAGE RATE (Dollars per hour) (D _. 1) Supply Den and O 10 I 20 ----+ . I l 30 40 50 60 QUANTITY OF LABOR (Thousands of workers) The union's wage increase from $12 to $16 per hour causes an excess supply of: workers. (Note: Be sure to enter your answer in thousands of workers.) Wage Rate (Dollars per hour) Quantity Demanded ( Thousands of workers) Excess Supply ( Thousands of workers) Demand Shifter Prounion Advertising (Millions of dollars) j] 30 Quantity Supplied (Thousands of workers) Shortage ( Thousands of workers) 30 Suppose that the union, in order to mitigate the unemployment caused by the wage increase, bolsters demand by rolling out a "Buy Union'I advertising campaign. If the union spends $4 million on the campaign, the excess supply of labor will be workers. (Note: Be sure to enter your answer in thousands of workers.) 2. Links between factor markets The following scenario examines markets for factors of production, which include land and labor, used to produce oranges in California in 1935. During this time periodknown as the Dust Bowlmajor dust storms caused residents of Kansas to migrate west to such states as California and Washington. Using the example of the Dust Bowl, illustrate the effects of this influx of migrants on the market for labor in California on the following graph. Assume the marginal product of workers in California remains the same in spite of the migrant workers. Market for Labor 0 Supply Demand El Supply 5 + '3' I I I I I Demand I I I I I LABOR From the graph, you can deduce that the migration of workers leads the equilibrium wage rate in California to V . Now consider the effect this change in the labor market has on the land market. In particular, think about the wage change you just found on the market for agricultural land in California. Assuming that labor and land are used together in the production of oranges, illustrate this effect an the land market in California on the following graph. 0 Market for Land 0 Supply Demand El 5 Supply BE _, + .s I E I '3' I I I Demand I I I I I LAND