1.Consider the market for low-skilled labor where firms demand labor and workers supply labor. The price of low-skilled laboris the hourly wage paid to the workers in dollars, . The demand and supply curves are:

D(W) = 60 - 2W andS(W) = 30 +W

(These give the number of hours demanded/supplied each week in millions, i.e., if S(W)=30 this means there are 30 million hours supplied at that hourly wage. But, I will assume your answers are in millions so you don't need to keep writing millions.)

The equilibrium wage and quantity are*=10 and *=40.

a.Consider a minimum wage of W=$8. What will be the new equilibrium wage and quantity? (1pt)

a.W*= 8

b.Q*= 60 -2 (8) = 44

b.Suppose the Democrats implement a new federal minimum wage of W=$12. What will be the new equilibrium wage and quantity? (1pt)

a.W*= 12

b.Q*=

c.Draw a supply and demand graph with the minimum wage to illustrate your answer to (b).(2pts)

d.Quantity represents employment, then what has happened to unemployment (increased/decreased/same)? (1pt)

e.What term best describes the effect of this policy on social surplus? (1pt)

_____________ ________

f.What has happened to consumer surplus (remember this is for the firms/employers in this question)? (1pt)

g.What has happened to producer surplus (this is the workers in this question)?(1pt)

i.It has gone up.

ii.It has gone down.

iii.It has stayed the same.

iv.We don't have enough information to know.