Question
(10 points) Argue why the labor demand curve is usually downward sloping and the labor supply curve is usually upward sloping. 2. (10 points) Illustrate
(10 points) Argue why the labor demand curve is usually downward sloping and the labor supply curve is usually upward sloping. 2. (10 points) Illustrate the equilibrium in the labor market using an upward sloping supply and downward sloping demand diagram. Clearly label the diagram. Denote by w the initial labor equilibrium. 1 3. (5 points) Suppose the government imposes a minimum wage above the equilibrium wage w < wmin. Show in the figure the new wage and employment. Is there unemployment? If so, depict it in the diagram. 4. (10 points) Show in the figure the deadweight loss. Explain why there is an inefficiency in this market with a minimum wage. 5. (5 points) Now suppose that individuals supply their labor inelastically. Depict this new equilibrium in a separate diagram assuming the equilibrium wage is the same as in the previous numerals. 6. (5 points) Suppose the government imposes the same minimum wage as before. Show the new wage and employment in equilibrium. Is there more unemployment? 7. (5 points) How does the deadweight loss compare to the original case with more elastic labor supply? 8. (10 points) Suppose automation allow firms to substitute labor for machines, making the demand of labor more elastic. Would this increase or decrease the slope of the labor demand? Depict this change in a diagram assuming the equilibrium wage and employment is the same as in the initial case. 9. (10 points) Show in a diagram what happens to unemployment and the welfare loss from a minimum wage when there is automation. Are there more unemployed? Are the people worse off?
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