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Suppose the demand for labour is given by: L d = 50w + 450 And the supply is given by L s = 100w where

Suppose the demand for labour is given by: L d = 50w + 450

And the supply is given by L s = 100w

where L represents the number of people employed and w is the real wage rate per hour.

a) What will be the equilibrium levels for w and L in this market?

b) Suppose the government wishes to raise the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? What will the new equilibrium level of employment be? How much total subsidy will be paid?

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