Question

Low-skilled workers operate in a competitive market. The labor supply is QS = 10W (where W is the price
of labor measured by the hourly wage) and the demand for labor is QD = 240 – 20W. Q measures the
quantity of labor employed (in thousands of hours).
a. Find the equilibrium wage (W) and quantity (Q) of low-skilled labor workers in equilibrium.
b. If the government passes a minimum wage of $10 per hour, what will be the new quantity of labor (Q)
demanded? Comparing labour demand and supply at the minimum price, will there be a shortage or
surplus of labor? How large?
c. Calculate the deadweight loss of this price floor.
d. By comparing the producers’ surplus before and after the minimum wage is introduced, how much
better off are low-skilled workers in this case? How much worse off are employers?