In a particular industry, labor supply is Es = 10 + w and labor demand is Ed = 40 – 4w, where E is the level of employment and w is the hourly wage.
a. What is the equilibrium wage and the employment level if the labor market is competitive? What is the unemployment rate?
b. Suppose the government sets a minimum hourly wage of $8. How many workers would you expect to lose their jobs? What is the unemployment rate?