Imagine you have been appointed the Chief Economic Advisor to a political campaign in the United

States. Being an interested public policy researcher, you know that the demand for labor is not

very price sensitive (i.e. -0.8) and that the average wage is $ 10.00 per hour. In addition, after

having reviewed the Department of Labor (USDA) statistics, you know that the total labor force is

300 Million with a total amount of unemployment ranging around 10.0% (i.e., 30 Million). Recent

research indicates that the elasticity of labor supply is 0.2. (Hint: For your calculations, please use 300 for 300 Million.)

4.1 Market Equilibrium in the US Labor Market

Derive the labor market equilibrium analytically. In addition, explain briefly what the labor demand elasticity (-0.8) implies for the US Labor market? (Hint: Derive the labor demand curve first. Please keep in mind that the market equilibrium is reached when all the labor

force is employed. The demand function for labor equals Ld = 486 - 21.6W, whereby labor supply

can be written such that Ls = 240 + 6.96W. Please use these functions to cross-check your own

result.)

4.2 The Demand and Supply for Labor

Please illustrate graphically demand and supply in the US labor market.(Hint: Please use the

concrete numbers. The y-axes is the hourly wage (W), and the x-axes represents the amount of

employed labor force (L).)