What are the equilibrium wage rate and employment level by X1C2SF7

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									   a.   What are the equilibrium wage rate and employment level? What is the
        economic rent?

        Ans.

The equilibrium wage is the wage where the quantity of labor demanded is equal to the
quantity of labor supplied for a specific type of labor. The equilibrium quantity of labor
is both the quantity supplied and the quantity demanded. The equilibrium wage is the
only wage where the plans of firms to hire workers are just matched by the plans of
workers to obtain employment. At any other wage, either the firms or workers are
frustrated.


Equilibrium Employment level: It is the level at which the rate of ob creation equals the
rate of job destruction.


Economic Rent: It is the amount of rent a property likely would command in the open
market if it were vacant and available for rent. Economic rent may be more or less than
the actual rent currently in force.

b. Next assume that the price of a substitute resource increases, other things constant.
What happens to demand for labor? What are the new equilibrium wage rate and
employment level? What happens to economic rent?
Ans.

If the price of substitute resource increases, then the demand for labor will increase and
this will lead to upward shift in the equilibrium wage rate and employment levels as well.
The economic rent will also increase.


c. Suppose instead that demand for the final product drops, other things constant.
Using labor demand curve D1, as your starting point, what happens to the demand for
labor? What are the new equilibrium wage rent and employment level? Does the amount
of economic rent changes?

Ans.
If the demand for the final product drops, other things constant, then, the demand for
labor will decrease. This will lead to a lower and downward shift in the equilibrium wage
rate and employment levels as well. The economic rent will also decreases.

								
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