Suppose labor demand and supply are represented by the equations Demand:

LD = 10 - 0.5W

Supply: LS = 0.5W

1. Find the equilibrium wage and employment level.

2. Graph the curves and indicate the equilibrium on the graph.

3. Suppose three workers are hired at a wage of $6. Give an example of a mutually beneficial exchange that can still take place. Indicate the economic rent that is generated by your transaction.