Question
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 +
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?
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