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Problem 3. Suppose that in a labor market, the supply function and the demand function are Ls(w) = 10 + (1/5)w, and Ld(w) = 20
Problem 3. Suppose that in a labor market, the supply function and the demand function are Ls(w) = 10 + (1/5)w, and Ld(w) = 20 - (4/5)w, where w is the hourly wage, in euros, and L the number of hours. Find the equilibrium wage in this market (write a number, for example, 30. No decimals) Answer: 10 Continue with Problem 3. Denote by w the wage received by workers. Suppose that firms get an ad-valorem subsidy from the government of t=5/24 on the wage w paid to workers (i.e. a subsidy of 5/24=20.833%, so that the net after- subsidy wage paid by firms is w(1-t)). Find the new equilibrium wage, W, received by workers (write a number, no decimals) Answer: 11 Continue with the previous question. Say that S is the amount spent by the government on this subsidy. Find the "subsidy incidence", i.e. T=the amount of S that we can claim that goes to the workers, and F=the amount we can claim that goes to the firms (S=T+F). O a. T=24.8; F=6.2 O b. T=16.4, F=14.6 O c. T=11; F=11 O d. T=14, F=8
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