Sample Question: Demand and Supply
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A) Demand and supply conditions in the perfectly competitive market for unskilled labor are as follows:
QD = 120 - 12P (Demand)
QS = 8P (Supply)
where Q is millions of hours of unskilled labor and P is the wage rate per hour.
1. Graph the industry demand and supply curves.
2. Determine the industry equilibrium price/output combination both graphically and algebraically.
3. Calculate the level of excess supply (unemployment) if the minimum wage is set at $7 per hour.
B) The tax burden falls mainly on consumers when demand is relatively elastic and it falls mainly on producers when demand is inelastic. True or false? Explain and give examples.
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Solution Summary
The solution graphs supply and demand curves. The industry equilibrium price/output combination are determined both graphically and algebraically. The level of excess supply if the minimum wage is set at $7 per hour is determined.
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