Question

Scenario 1 Let market demand for domestic workers be represented by Ep = 1,000 - 50w where Epis domestic labor demanded and w is the hourly wage. Refer to Scenario 1. Suppose instead the domestic labor supply is represented by Es = 87w- 750. Now, suppose that 99 immigrants that are perfect substitutes for native workers enter the market and their labor supply is perfectly inelastic. Hint: perfectly inelastic supply means that even if wage is $0.01, all workers with perfectly inelastic supply are willing to work. Another hint: Native workers do not have perfectly inelastic supply. It might help to draw on a supply and demand diagram how the total labor supply curve (which includes both natives and immigrants) might look like now that there are 99 additional workers with perfectly inelastic supply. What is the equilibrium wage for all workers in this market after the immigrants enter (round to the hundredth of a dollar)?

Answer 1

Answer: the equilibrium wage for all workers in this market after the immigrants enter is approximately $12.05 per hour

Step-by-step explanation:

To determine the equilibrium wage for all workers in the market after the immigrants enter, we need to find the point where the total labor supply and labor demand intersect. Let's first calculate the new total labor supply curve.

The domestic labor supply is represented by Es = 87w - 750. With the entry of 99 immigrants with perfectly inelastic supply, we can add their labor supply to the domestic labor supply:

Total labor supply = Es (domestic labor supply) + 99 (number of immigrants with perfectly inelastic supply)

Total labor supply = 87w - 750 + 99

Total labor supply = 87w - 651

Now, we can set the total labor supply equal to the labor demand to find the equilibrium wage:

87w - 651 = 1,000 - 50w

Combining like terms:

137w = 1,651

Dividing both sides by 137:

w ≈ 12.05