Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N),

while the supply of labor is 1000 + 1000w.

a. Find the market-clearing real wage rate and level of employment.

b. What happens to the wage rate and employment if wealth rises, reducing the supply of

labor to 500 + 1000w?

c. What happens to the wage rate and employment if after wealth has risen as in part (b),

there is a productivity shock that increases the marginal product of labor to MPN =

0.0025(16,000 - N)?

Suppose now that the marginal product of labor and the supply of labor are back at their

initial levels.

d. What happens if the government imposes a minimum wage of 8? Is there

unemployment? If so, what is the number of unemployed workers?

e. What happens if the government imposes a minimum wage of 14? Is there

unemployment? If so, what is the number of unemployed workers?