Question
3. Suppose the supply of workers in the market for plumbers in Moscow is given by the equation: w = 10 + 0.2QS. The demand
3. Suppose the supply of workers in the market for plumbers in Moscow is given by the equation: w = 10 + 0.2QS. The demand in the market is described by the equation: w = 70 0.1QD. In these equations, w represents the hourly wage, Qs represents the quantity of labor supplied, and QD represents the quantity of labor demanded.
a. (3 points) Assuming this is a competitive labor market, solve for equilibrium in the market. Then sketch a simple diagram of the market, label the welfare areas, and solve for the welfare (surplus) calculations.
b. (3 points) Suppose that the generation of people raised by technology eventually matures and can afford their own homes. Their comfort with \ means that some homeowners are now more likely to watch videos and solve their own plumbing issues, as opposed to hiring an actual plumber. With the aid of diagrams, show what you expect will eventually happen to total surplus, worker surplus, and firm surplus, and discuss briefly. Is the market operating efficiently after this change?
c. (5 points) (Ignore what happened in part b.) The year is 2023 and a polar vortex moves in across the Palouse. A bitter cold descends upon the fine people of Moscow, with wind chills reaching 50 degrees below zero. Astonishingly, the brave and bold students of the UI are not deterred, and continue to attend some of their classes, as per usual. Neil Metz, local degenerate/climate change skeptic, feels vindicated and rents a billboard along the Troy Highway with a message taunting those that believe in science. Most pertinent to the matter at hand, area pipes begin to freeze and break at alarming rates, and the demand for plumbers increases. The new demand curve can best be described by: w = 90 0.1QD. Since plumbing is a skilled trade, the quantity of plumbers in the market is fixed at the current amount in the period following the demand increase. Using this information: - Find what will happen to the wage immediately after the demand increase. - Draw a graph depicting the labor market situation at this new wage, and label the new areas of firm surplus and worker surplus - Solve for the values of firm surplus, worker surplus, and total surplus - Is the market operating efficiently? Discuss the changes in welfare that occur in the period after the demand increase
d. (3 points) What will happen to the quantity supplied of workers once the market adjusts to the new wage found in part c? Explain what impact this supply reaction will have on the market, and what will happen next.
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