Predict Wages and Employment

Suppose the equilibrium employment is 100,000 workers and the equilibrium wage is $100 per day. The wage elasticity of demand for labor is -1.0 and the wage elasticity of supply of labor is 5.0. Suppose the demand for labor increases by 18 percent.

a)At the initial wage ($100 per day), calculate the excess demand of labor. (4 points)

b)Calculate the change in the equilibrium wage. (4 points)

c)Calculate the change in the equilibrium total employment. (4 points)

Use a graph to illustrate the effects of the increase in labor demand on the urban labor market, including values for the equilibrium wage (in partb) and equilibrium total employment (in partc). (6 points)