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Suppose that you have been hired to analyze wages in a simple market. The demand for labour and supply of labour can be repre

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Answer #1

Ld = 100- 5W

Ls = 5W

(a) At competitive equilibrium Ld= Ls, we get :

100-5W =5W

100= 10W

W = $10

L= 5(10)= 50 thousand

Therefore, the competitive market equilibrium wage is $10 per hour.

And the competitive market equilibrium quantity of labor is 50 thousand workers.

(b) New labor demand , Ld =120-5W

Now, equate new labor demand and labor supply , we get :

120- 5W = 5W

120= 10W

W = $12

L= 5(12)= 60 thousand

Therefore, the new equilibrium wage is $12 per hour.

And the new competitive market equilibrium quantity of labor is 60 thousand workers.

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