Question 1: Demand and supply conditions in the perfectly competitive market for unskilled labor are as follows:
QD = 120 - 12P (Demand)
QS = 8P (Supply)
where Q is millions of hours of unskilled labor and P is the wage rate per hour.
1. Graph the industry demand and supply curves.
2. Determine the industry equilibrium price/output combination both graphically and algebraically.
3. Calculate the level of excess supply (unemployment) if the minimum wage is set at $7 per hour.
Question 2: The tax burden falls mainly on consumers when demand is relatively elastic and it falls mainly on producers when demand is inelastic. True or false? Explain and give examples.