Quantitative Problems

1.
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Consider a single competitive industry, in which the demand for labor is L = D (W) = 100 – 5 · W, and the supply of labor is L = S(W) = 15 · W.

(a) What is the competitive equilibrium outcome in this labor market?

(b) What happens if the government imposes a minimum wage of $10?
2.
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There are two distinct sectors: taxidermists (X) and tap dancers (T). It is surprising that there is complete labor mobility between the two sectors. There are 100 equally talented workers who supply their labor inelastically. The demand for taxidermists is , and the demand for tap dancers is .

(a) What is the competitive equilibrium outcome in this labor market?

(b) What would happen if the government imposed a minimum wage of $7 that covered only the taxidermy sector?
3.
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An increase in the minimum wage obviously raises employers costs and therefore must lower the level of employment. Discuss.
4.
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Consider a monopsonist that confronts a wage requirement's schedule W = S(L) = L and whose marginal revenue product (MRP) of labor schedule is MRP = 24 – 6 · L.

(a) What is the monopsony outcome?

(b) What happens if the government sets a minimum wage ? How is this possible? What would happen if, instead, it chose ? (Hint: The marginal cost of labor is )
5.
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Is it necessarily the case that an increase in the minimum wage reduces income inequality?

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