Assume that a minimum wage of $7 (rounded down from the current U.S. minimum) has been proposed for your college's cafeteria workers. Obviously this wage will not cover all jobs in your area. Using a two market model, analyze graphically the probable effects of this proposal on (1) employment, (2) unemployment (3) total income, and (5) employment in an uncovered market. Briefly describe your results.

 

1. Assume that there are two identical markets in New York, Covered and Uncovered. For each the labor demand curve is W_d = 14 - 2Ld and the supply curve is Ws = 2 + Ls, where L is millions of workers. Find the equilibrium wage and quantity of labor for either of these markets (they are the same).

1. Now assume that the minimum wage is raised to $7 in the covered market. Find the new levels of labor demanded and supplied in the covered market. Then calculate the change in total employment compared to the original equilibrium and the initial labor surplus in the covered market.

1. The supply curve above (Ws = 2 + Ls) is also equal to Ls = W - 2. After the living wage the uncovered market supply will be Ls = W - 2 + the displaced employees from the covered market (careful of the signs). Find the new equilibrium wage and quantity of labor in the uncovered market after this supply shift.

1. Using your answers to parts A, B, and C, find the total change in labor earnings (wage * labor) for both markets combined, along with the net change in employment and unemployment for the two markets combined.

Answer rating: 100% (QA)

1 Equilibrium in each original market Wd 14 2Ld Ws 2 Ls Set Wd Ws and solv... View the full answer