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Finding equilibrium wage and employment level

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Assume demand and supply conditions in the competitive market for unskilled labor are as follows:

P= $15 - 0.3QD (Demand)

P= $0.2QS (Supply)

where Q is millions of hours of unskilled labor and P is the wage rate per hour.

A. Illustrate the industry equilibrium wage/employment combination both graphically and algebraically.

B. Calculate the level of excess supply (unemployment) if the Federal minimum wage is raised from $5.15 to $6 per hour.

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Solution describes the steps to find out equilibrium wage and employment level in the given scenario.

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Please refer attached file for graph.

A. Illustrate the industry equilibrium wage/employment combination both graphically and algebraically.

P = $15 - 0.3QD (Demand)
or 0.3QD=15-P
QD=50-(10/3)P

P = $0.2QS (Supply)
or QS=5P
Equilibrium wage will be equal to wage ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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