Question

1. Consider Alex. He is a college student, as mentioned in Assignment No. 1, looking for part time job at a local bookstore. We model the bookstore's labor demand as: Wp=10-0.5xHD where Wp is hourly wage under the demand function and Hp is number of hours worked per day. We also model Alex's labor supplies as: WA=5+0.75XHA where Wa is hourly wage under the supply function for Alex and HA is number of hours worked per day. a) Compute the amount of unemployment imposed on Alex if a minimum wage of $9.5 is mandated in the area. Measure the imposed unemployment by hours per day. (5 points) b) Assuming that Alex is hired under the minimum wage, compute Alex's weekly earning. Keep in mind that a working week is only 5 days. (5 points) c) Assuming that there is no mandated minimum wage in the area and that Alex is hired under the equilibrium wage, compute Alex's weekly earning. Again, keep in mind that a working week is only 5 days. (5 points) d) In terms of weakly earnings, did Alex benefit from minimum wage? (5 points)

Answer 1

(1.) Labor demand: Wo = 10-O-SHO Labor Supply : WA = 5+0.75 HA

(a) Grinen minimum wage (Wmin) - $9.5 At Wmin - $9.5 labor demand is, Wmin = Wo - Wmin - 10-0.5H - go5 = 10-0.5 Ho 0.5H₂ = 0.g & Ho = 1 hours per day = $9.5 labor Wmin Supply is, Wmin = WA Wmin = 5 +0.75 Ha Teacher's Sie

Hence his weekly earning in equilibrium = 20 hours x $8 = $160 (d) Since weekly earning in equilibrium is greater than the weekly earning in minimum wage it implies that Alex did not benefit from minimum mage.