Suppose the marginal product of labor in the economy is given by MPN = 200 - 0.5 N, while the supply of labor is 100 + 4w.(a)Find the market-clearing real wage rate.(b)What happens if the government imposes a minimum wage of 40? Is there involuntary unemployment?(c)What happens if the government imposes a minimum wage of 60? Is there involuntary unemployment?
What will be an ideal response?
| (a) | The market-clearing real wage rate equates the demand and supply of labor. Setting w = MPN |
| (b) | A minimum wage of 40 has no effect, as it is below the market wage, so involuntary |
| (c) | A minimum wage of 60 is binding, as it is above the market wage. At w = 60, labor demand is |
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