4. Labor Markets, Minimum Wages, and Wage Subsidies: Consider a perfectly competitive labor market with a market supply curve

And with a market demand curve L = 100w L = -50w + 450

a) Solve for the equilibrium level of the wage and of employment (L). (5)

b) Suppose that a minimum wage of $4 is imposed in this market. How much labor will be employed? What will be the excess supply of labor? (5)

c) Forget the minimum wage. Suppose instead the government will provide a subsidy to firms for every unit of labor they employ, reducing their cost per unit of labor by the amount of the subsidy. Now, the labor demand curve is L = -50(w - s) + 450 where "s" is the amount of the subsidy. Suppose the government wants to set this subsidy to the amount necessary to raise the equilibrium wage to $4. How big should this subsidy be? How much labor is employed under this scheme? (5)

d) Graph your results - show and label the labor supply curve, the original labor demand curve, the subsidized labor demand curve, the minimum wage, and the resulting levels of employment in each case. (5)