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 Q D = 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 $9 per hour, what will be the new quantity of labor hired? Will there be an excess demand or excess supply of labor? How large?
c. What is the deadweight loss of a $9 minimum wage?
d. How much better off does the $9 minimum wage make low-skilled workers (in other words, how much does producer surplus change), and how much worse off are employers?
e. How do your answers to (c) and (d) change if the minimum wage is set at $11 rather than $9?