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Ackbar

  • 4 years ago

Need help with labor market question: deriving labor demand and wage from labor demand function and labor supply function (!?) @dpflan

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  1. Ackbar
    • 4 years ago
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    The labor demand functions is: LD = 34 - 4w, and the labor supply function is: LS = L* + 2w

  2. Ackbar
    • 4 years ago
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    if L* = 10, then what is the equilibrium wage and labor demand?

  3. dpflan
    • 4 years ago
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    Hey @Ackbar, sure, I'll this a try ;)

  4. Ackbar
    • 4 years ago
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    \[LD = 34 - 4w\] and \[LS = L* + 2w\] and L* = 10 so \[LS = 10 + 2w\] Now, equate demand and supply so \[LD = LS\] \[ 34 - 4w = 10 + 2w\]

  5. dpflan
    • 4 years ago
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    OK, so \[w = (34 - 10) / 6 = 4\]

  6. Ackbar
    • 4 years ago
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    kk, and LS = 10 + 2*4 = 18

  7. Ackbar
    • 4 years ago
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    OK!

  8. Ackbar
    • 4 years ago
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    so what would be elasticity of demand here given the wage? just take the derivative of LD with respect to wage?

  9. dpflan
    • 4 years ago
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    \[d{LD} / d{w} * (w^{*} / L^{*}) \]

  10. Ackbar
    • 4 years ago
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    LD = 34 - 4w, so d(LD) = -4, then -4 * (4 / 18) = -16/18 = -8/9

  11. dpflan
    • 4 years ago
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    so that would be inelastic demand for labor at w*

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