Question

3) Supply and demand for a competitive labor market for professional hockey players is described by the following equations, where quantity is measured in hundreds:



P = 120 – 2Qd


P = 20 + 3Qs



Draw a graph of this labor market and calculate, and show, the equilibrium salary and quantity of players.


Assume there are 30 teams in a league. What is the effect of roster size per team being limited to 60? What is the effect of roster size per team being limited to 70?


Calculate the change in total surplus if roster size is changed from 60 to 50? As a whole, under which roster size limit are players better off?

Answer 1

In equilibrium Qd = Qs, so:

$120 – 2Q = 20 + 3Q,$

Q = 20 hundred or 2,000 players.

If there are 30 teams in a league, then in average there are 2,000/30 = 67 players per team.

If roster size per team is limited to 60, then there will be a surplus of players.

If roster size per team limited to 70, then there will be no change in the labor market.

If roster size is changed from 60 to 50, then the total surplus will decrease.

So, players are better off under 70 roster size limit.