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Chapter 9: Labor demand (page 327)
What is the difference between demand for labor and supply of labor?
One refers to hours the other to the amount of workers.
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In Example 9.1 (page 332), we calculated the gains and losses from price controls on natural gas and found that there was a deadweight loss of \(5.68 billion. This calculation was based on a price of oil of \)50 per barrel.
a. If the price of oil were \(60 per barrel, what would be the free-market price of gas? How large a deadweight loss would result if the maximum allowable price of natural gas were \)3.00 per thousand cubic feet?
b. What price of oil would yield a free-market price of natural gas of $3?
What are the features of privatization when being implemented on a state owend firm?
Suppose the market for widgets can be described by the following equations:
Demand: P = 10 - Q
Supply: P = Q 鈥� 4
where P is the price in dollars per unit and Q is the quantity in thousands of units. Then:
a. What is the equilibrium price and quantity?
b. Suppose the government imposes a tax of \(1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? Whatamount per unit will the seller receive?
c. Suppose the government has a change of heart about the importance of widgets to the happiness of the American public. The tax is removed and a subsidy of \)1 per unit is granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government?
How did successive UK governments use public ownership?
From time to time, Congress has raised the minimum wage. Some people suggested that a government subsidy could help employers finance the higher wage. This exercise examines the economics of minimum wage and wage subsidies. Suppose the supply of low-skilled labor is given by
LS= 10w
where, LS is the quantity of low-skilled labor (in millions of persons employed each year), and w is the wage rate(in dollars per hour). The demand for labor is given by
LD= 80 - 10w
a. What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of \(5 per hour. How many people would then be employed?
b. Suppose that instead of a minimum wage, the government pays a subsidy of \)1 per hour for each employee. What will the total level of employment be now? What will the equilibrium wage rate be?
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