Economics 0115
Homework #2
Table 1: The
Market for Steelworkers
$10
400 00 480
320 160 **
$12
360 40 440
280 200 **
$14
320 80 400
240 240 **
$16
280 120 360
200 280 **
$18
240 160 320
160 320 00
$20
200 200 280
120 360 40
$22
160 240 240 80
400 80
$24
120 280 200
40 440 120
$26
80 320 160
00 480 160
$28
40 360 120
** 520 200
$30
00 400 80
** 560 240
1. Given the original supply and demand curves in
Table 1 (LD0 and LS0), do the
following:
a.
Find the equilibrium wage and quantity of labor hired.
b. Calculate the total earnings of labor (TE) in this market.
c.
Graph this situation and label all of the points described above.
d.
What situation occurs when the wage is $26? Explain how the market adjusts back
to equilibrium when the wage is $26.
NOTE:
Show all work for sections requiring calculations.
2. Using
the numbers in Table 1, start with the equilibrium established with LD0
and LS0, draw the indicated shift in demand or supply,
and briefly explain your graph. Then repeat 1.a. through 1.c. for the
following:
a.
There is a decrease in demand for steel as producers use aluminum instead of
steel in their cans.
b.
Legislation preserving the spotted owl reduces the supply of lumber and
increases its price. As a consequence, many home-builders begin using structural
steel frames to construct homes.
c.
Because younger workers see better possibilities elsewhere, the number of
retiring steelworkers exceeds the number of new steelworkers.
d.
Unions negotiated a number of "givebacks" in the early 1980s which
lowered the wages of steelworkers from $26 to $22. (Note: Unions will generally set wages above those set
by the market because they have market power. Givebacks mean that unions are
willing to lower wages to save jobs even though these lower wages are still
above those set by the market.)
3. Using the numbers in Table 1, start with the
equilibrium established with LD0 and LS0
and do the following:
a.
The government establishes a minimum wage for unskilled workers at $24. Draw this
on a graph and briefly explain how this minimum wage will affect this labor
market.
b.
Calculate the welfare loss associated with the minimum wage and indicate the
welfare loss on the graph. Briefly explain what a welfare loss is.
c.
Graph and explain what happens when the minimum wage is raised to $26. What
happens to the welfare loss? Explain.
d.
Graph and explain what happens to minimum wage workers in a recession. Then
compare this result to what happens to workers who are not affected by the minimum
wage.
Table 2
Taxed
Sector (1)
W $12
$14 $16 $18
$20 $22 $24
$26 $28
LD0 110 100 90
80 70 60
50 40 30
LS0 30
40 50 60
70 80 90
100 110
LD1
Untaxed Sector (2)
W $12
$14 $16 $18
$20 $22 $24
$26 $28
LD0 110 100 90
80 70 60
50 40 30
LS0 30
40 50 60
70 80 90
100 110
LS1
4. Given the numbers in Table 2, do the
following:
a.
Graph the supply and demand for the taxed sector and label all relevant points
with numbers.
b.
A tax of $4 per worker is levied on employers. Place the proper numbers in the
row for LD1 and draw a new graph with this tax on it. Be
sure to label the new equilibrium.
Table 2
Taxed
Sector (1)
W $12
$14 $16 $18
$20 $22 $24
$26 $28
LD0 110 100 90
80 70 60
50 40 30
LS0 30
40 50 60
70 80 90
100 110
LD1
c. Extra Credit: Calculate the final
burden for employer and worker and indicate each area on the graph.
d.
Calculate the welfare loss and explain how it arose.
e.
Graph the supply and demand curves for the untaxed sector and label all
relevant points with numbers.
f.
Show and explain what happens in the untaxed sector when those workers who were
displaced by the tax attempt to find jobs in that sector. Fill in the second
part of Table 2 for the new supply curve and label the new equilibrium.
Table
2
Untaxed
Sector (2)
W $12
$14 $16 $18
$20 $22 $24
$26 $28
LD0 110 100 90
80 70 60
50 40 30
LS0 30
40 50 60
70 80 90
100 110
LS1