Problem 3 Labor Market a) Review Problem 2 from PS4 (you will need it for the midterm). In that problem, we found that Kate's labor supply is inelastic and equal to 12h (per day). Plot her labor supply in a graph with the real wage (w/ p) on the vertical axis and L on the horizontal one. b) Suppose Kate works for GMC described in Problem 1 of this PS. Add this company's labor demand curve to your graph in part (a). Find the equilibrium real wage rate (w/p) that clears the labor market (do it both analytically and using the graph). c) Suppose the wage rate is above the equilibrium level you found in part (b). Do we observe unemployment or excess demand of labor on the market? What market forces drive the wage rate down? (give a newspaper story; why will the wage go down?) ECON 301, INTERMEDIATE MICROECONOMICS PS 8 Problem 4 3 d) Suppose Kate's preferences change so that now she is willing to supply only 8h. On a graph show how this affects equilibrium real wage and the labor supply level. Find the two values analytically. e) Suppose the government passes the law that sets the minimal (real) wage rate equal to 10/39 = 2. How does this affect the equilibrium on the labor market (assume Kate's supply is 8h)? Find the unemployment rate associated with such a policy