1) Suppose that Labor Supply is linear with exactly 0M people willing to work at a wage of $0 and 5M more people willing to work for each $1 increase in the wage. Labor Demand was such that the equilibrium wage rate was $20. Suppose that a negative shock hits labor demand so that the new [inverse] Labor Demand Curve has a vertical intercept at 110M and slope of -0.5. If downward wage rigidity prevents the wage from falling below $20, then how many people will be unemployed?

1) Suppose that Labor Supply is linear with exactly 0M people willing to work at a wage of $0 and 5M more people willing to work for each $1 increase in the wage. Labor Demand was such that the equilibrium wage rate was $20. Suppose that a negative shock hits labor demand so that the new [inverse] Labor Demand Curve has a vertical intercept at 110M and slope of -0.5. If downward wage rigidity prevents the wage from falling below $20, then how many people will be unemployed?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.12P

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