Final answer:
An increase in the quantity of labor demanded by 40,000 at each wage level shifts the demand curve right, leading to a higher equilibrium wage and greater equilibrium quantity of labor in the market. The actual increase would depend on the labor supply curve's elasticity. A union-set wage $4 above market equilibrium typically leads to excess supply or unemployment.
Step-by-step explanation:
When considering the free market equilibrium hourly wage and the new equilibrium quantity of labor due to a demand increase by 40,000 at each wage level, we must assess how the increase in demand shifts the demand curve to the right. This increased demand for labor, assuming all other factors are held constant, would typically result in a higher equilibrium wage and an increased quantity of labor in the market.
Supply and demand theory posits that if the quantity of labor demanded increases (demand curve shifts to the right), employers are willing to hire more workers. The market responds with an elevated equilibrium wage to equate this higher demand with the available supply. If initially the equilibrium wage was $10 per hour with 20 million workers, the new demand will push this wage upwards. How much it increases depends on the elasticity of the labor supply—the responsiveness of the quantity supplied to a change in price (wage in this scenario).
If we were to hypothesize in this situation without specific data, the new equilibrium wage would be higher than $10, and the new equilibrium quantity of labor would be greater than 20 million workers. The actual numbers would require an assessment of the labor supply curve's slope and potential shifts in labor supply. Similarly, factors like minimum wages could affect the market by setting a price floor, but without a specific minimum wage policy mentioned and assuming a perfectly competitive labor market, we expect wages to rise and equilibrium quantity to increase with increased demand.
In cases where unions influence wage rates, such as negotiating a wage $4 higher than the market equilibrium, the result tends to be an excess supply of labor, or in simpler terms, unemployment. This is because the higher wage rate reduces the quantity of labor demanded while increasing the quantity supplied, creating a labor surplus.