Because of law change, Smith Co. has to start providing health insurance to their employees. They did not earlier do so. Suppose the original labor demand at Smith Co. is given by W=10-1.5L and the original labor supply is given by W=L+3. W is wage (salary). L is number of employees. Suppose health insurance costs employers $3 per person.

a. Assume that employees value health insurance at exactly the cost to the employer. Please draw a labor supply and demand graph, before and after health insurance is provided, depicting what will happen to equilibrium wages (salary) and hiring levels. Please also show numerical answers for the wages and level of hiring, before and after health insurance is provided, as well as the equations for the labor demand and supply graphs after health insurance is provided.

b. Now assume that employees will not value health insurance as much as it will cost the employer to provide it. Specifically, assume that the employees value the health insurance at only $1.50 each while the health insurance still costs the firm $3 per employee. Please redo the answers to part a) with this change.