Question
Hi I need help answer these sub parts to the question below: Data: The demand for labor in Tucson is characterized by the following equation:
Hi I need help answer these sub parts to the question below:
Data:
The demand for labor in Tucson is characterized by the following equation:
W=12-q/100,000,
WhereWisthewageandqisthequantityofhoursdemandedbyemployers.Workersarewillingtosupplyhoursofworkbasedonthefollowingequation:
W=4+q/100,000.
Question:
It turns out that the city of Tucson cannot enforce the minimum wage very well and they cannot tell employers whom to hire. An underground market for jobs develops. The city has limited resources for enforcement, so that they can only catch employers in the underground market one hour out of every 100 hours that the employer cheats on the minimum wage.The fine for 1 hour of cheating is $100. Therefore, the expected fine the employer will pay is $1 per hour. The expected fine reduces what the employer is willing to pay to the worker in the underground market by $1 at every level of quantity demanded. If the employers all move underground,
a.What is the wage that workers will receive for their work?____________.
b.How many hours of work will be transacted?_________________.
c.What is the per-hour cost paid by the employer for an hour of work after the expected fine is included?
d.Is the deadweight loss under the "cheating equilibrium" larger or smaller than under the situation described in Part 3?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started