Suppose that you have been hired to analyze the effect on employment from the imposition of a minimum wage in the labor market. Further suppose that you estimate the demand and supply functions for labor, where L stands for the quantity of labor (measured in thousands of workers) and W stands for the wage rate (measured in dollars per hour):
Demand: LD = 100 - 4W
Supply: LS = 6W
First, calculate the free market equilibrium wage and quantity of labor. Now suppose the proposed minimum wage is $12. How large will the surplus of labor in this market be?