Question #47050

Suppose the following equations characterize the supply and demand in the labor
market model:
Labor Supply: LS = 2W+30
Labour Demand: LD = 60 - w(1+T)
W = WAGE/ T = PAYROLL TAX.
Suppose T= 0.2, solve for the equilibrium values of wage and labour supply.

Expert's answer

Labor Supply: LS = 2W+30

Labour Demand: LD = 60 - w(1+T)

W = w/ T = PAYROLL TAX.

T= 0.2,

We can find equilibrium values of wage and labour supply in the point, where LS = LD

2W + 30 = 60 - w(1+T)

2w/0.2 + 30 = 60 - w(1+T)

10w + 30 = 60 - w + 0.2w

10.8w = 30

w = 30/10.8 = $2.78

LS = 2*2.78/0.2 + 30 = 57.8 = 58 workers.

Labour Demand: LD = 60 - w(1+T)

W = w/ T = PAYROLL TAX.

T= 0.2,

We can find equilibrium values of wage and labour supply in the point, where LS = LD

2W + 30 = 60 - w(1+T)

2w/0.2 + 30 = 60 - w(1+T)

10w + 30 = 60 - w + 0.2w

10.8w = 30

w = 30/10.8 = $2.78

LS = 2*2.78/0.2 + 30 = 57.8 = 58 workers.

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