The figure above illustrates the current market for workers in ...

[strangeaffliction]

The figure above illustrates the current market for workers in Lima, Peru.
 
  a) Without any government intervention, what is the equilibrium wage rate and amount of employment?
  b) If the city government imposes a minimum wage of 3 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?
  c) If the city government imposes a minimum wage of 6 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?

Question 2

The marginal social benefit curve from a public good is found by horizontally summing the marginal benefit curves of all individuals.
 
  Indicate whether the statement is true or false

[annierak]

Answer to Question 1

a) The equilibrium wage rate is 4 an hour and the equilibrium amount of employment is 8,000 workers.
b) Employment remains 8,000 workers. The minimum wage does not create any unemployment. The 3 per hour minimum wage does not bring about any unemployment because it is below the equilibrium wage rate.
c) Employment decreases to 4,000 workers, the quantity of labor demanded at a wage rate of 6 per hour. At the wage rate of 6 per hour, the quantity of labor supplied is 12,000 workers and the quantity of labor demanded is 4,000 workers. Hence there are 8,000 workers unemployed. The minimum wage of 6 an hour creates unemployment because it is higher than the equilibrium wage rate. As a result, the quantity of labor supplied increases and the quantity of labor demanded decreases, leading to a situation of excess supply, or unemployment.

Answer to Question 2

FALSE