EQUILIBRIUM WAGES WITH GENERAL SHOCKS Assumptions. The inverse demand curve for labor is expressed as and = or 54L (1) The inverse supply curve for labor is expremed as w. = 7 + 8.1. (2} Q1. Solve for equilibrium wage rate 10". as a function oi a, 1, 63 and B. only. Each parameter should show up once in your final solution. Show your work. Q2. If you observe labor market shocks to both supply (A7) and demand (An). what con- ditions on (A7) and (An) hold if you observe rising wages? Based on what you nd. will 33. 3., or both dictate how fast the wage rates will rise? Why? Answne Ba and B. are constant when the shocks occur. Q3. Show both mathematically and visually that demand shocks will not change the price if the labor supply curve is perfectly elastic. First. solve for the equilibrium wage rate with a perfectly elastic supply of labor. Then draw the supply and demand diagram and show how the wage rate will change when demand increases