Part III. Understanding Minimum Wage Policy(3 points* 5 = 15 Points)

Minimum wage is one of the most classic price floor policies that governments use in practice. Suppose the following demand and supply curves describe the labor market for bus drivers in Endor.

Demand: P = 20 - 0.75Q

Supply: P= 2 + 0.25Q

where Pis the wage per hour, and Qrepresents the number of bus drivers hired, in thousands

(e.g. Q = 1 means that 1,000 drivers have been hired).

a) Calculate the equilibrium wage and the number of drivers hired. Illustrate on a graph.