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Labor Market Equilibrium: Wages

Consider the attached graph.

1. At labor market equilibrium, _______ workers are hired at a wage rate of $_______ per hour, while total wages equal $_______.

2. At labor market equilibrium, how much is the payment to U.S. capital owners?

3. If Mexican migration to the United States results in the labor force increasing to 3 workers, denoted by schedule S1, what is the effect (increase? Or decrease?) on the wage rate for native U.S. workers and the payments to U.S. capital owners? Explain your reasoning.

Figure 2 represents the U.S. labor market. Assume that labor and capital are the only factors of production. Also assume the initial supply schedule of labor is denoted by So and consists entirely of native U.S. workers. The demand schedule of labor is denoted by Do.
Hourly Wage/$ (see attached)

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Solution Preview

Question 1
This question can be answered with a simple examination of the graph. At the initial equilibrium (the intersection of S0 and D0), 2 workers are hired; and they are paid $12/hour each. So total wages are 12*2 = $24 (per hour).

Question 2
Since there is no data in the question to address this item, I'll use real world data. In order to answer this question, we need to know the share of total production that is paid as wages and the share that is "paid" as returns to capital. The sum of these shares should be 100%. In the U.S., the labor ...

Solution Summary

Total production is assessed.