Low-skilled workers operate in a competitive market. The labor supply is QS = 10W (where W is the price of labor measured by the hourly wage) and the demand for labor is QD = 240 – 20W. Q measures the quantity of labor hired (in thousands of hours).
a. What is the equilibrium wage and quantity of low-skilled labor working in equilibrium?
b. If the government passes a minimum wage of $10 per hour, what will be the new quantity of labor hired? Will there be a shortage or surplus of labor? How large?
c. What is the deadweight loss of this price floor?
d. How much better off are low-skilled workers in this case (in other words, how much does producer surplus change) and how much worse off are employers?