Answer to Question #132053 in Microeconomics for sanjesh

Question

Using a supply and demand analysis show first the labour market in equilibrium, and then show a) the effect of a reduction in the demand for labour as a consequence of a pandemic. b) The effect of a government subsidy to producers to restore the employment of labour. Provide a diagram with clear axis details. Make sure to explain what sort of assumptions you are making on the elasticities of demand and supply.

Answer 1

In the above figure, labor demand is shown in blue and labor supply in green.

Due to the pandemic, the demand for labor decreased, which led to a shift in the schedule of demand for labor to the left. In the following image, this graph is shown as a bold blue line.

After the government took measures to regulate the labor market in the form of subsidies, the demand graph moved to the right, which is shown in the next figure by the bold blue line.