Question

The equilibrium wage is where the Quantity of Labor Demanded is equal to the Quantity of Labor Supplied.

This occurs where the wage rate is \$12, because here the Quantity of Labor Demanded = Quantity of Labor Supplied which is 160 hours worked.

When there is an increase in the number of available workers which shifts the labor supply to the right by 30 hours worked, the Quantity of labor supplied becomes 160 + 30 = 190 hours and the corresponding labor demanded is 100 hours worked and the wage rate is \$18.

The initial value of potential GDP is when there was 160 hours worked by labors and the corresponding potential GDP was \$400 million.

The final value of potential GDP is when there was 190 hours worked by labors and the corresponding potential GDP was \$460 million.

The effect of this increase in the number of available workers on:

1) The equilibrium wage rate = \$18

2) The level of employment = 100 hours worked

3) The value of potential GDP = \$460 million

4) The value of worker productivity = Potential GDP/Number of hours worked = \$460million/100 = \$4.6 Million per labor hour.

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