## Unit 3 Assignment: Elasticity and Labor Market Equilibrium

In this assignment, you will be assessed on the following Outcome:

MT445-2: Analyze the effects of changes in demand and supply on market equilibrium.

In this assignment, you will elaborate price elasticity of demand and supply in the short-run and long-run. You will evaluate factors that change equilibrium wage rate and employment level. Moreover, you will calculate total revenue product and marginal revenue product, and compare them with total cost and marginal cost in order to determine the optimal quantity of labor that should be hired to maximize profit.

Instructions: This assignment requires a combination of short paragraph answers and computations. You are required to follow proper APA format. Read the Criteria section below for more information before you begin this assignment.

1. Is the price elasticity of demand for gasoline more elastic over a shorter or a longer period of time? Explain.
1. Is the price elasticity of supply, in general, more elastic over a shorter or a longer period of time? Explain.
1. Why is the supply curve for labor usually upward sloping? Explain.
2. In the graph below, assume that the market demand curve for labor is initially D1. The market supply curve for labor is indicated with figure “S.” Wage rate is depicted on the other things held constant vertical axis (dollars per unit), and employment level (quantity of labor) is depicted along the horizontal axis. Answer the following questions. (Description of graph: The graphs show both scenarios for an increase in demand as well as a decrease in demand in the labor market. If the labor demand increases, the demand curve shifts from D1 to D3. If the labor demand decreases the demand curve shifts from D1 to D2. The change in demand also changes the equilibrium values.)

1. What are the initial equilibrium wage rate and employment level?
2. Other things held constant, assume that the price of a substitute resource decreases
What will happen to the demand for labor? Will it increase or decrease?
What are the new equilibrium wage rate and employment level?
3. Other things held constant, suppose that demand for the final product increases. Using the labor demand curve D1 as your starting point, what happens to the demand for labor?
What are the new equilibrium wage rate and employment level?
4. Assume this industry is dominated by non-union workers. How would the equilibrium wage compare to that earned in a similar industry with similarly skilled union workers? Explain.
1. Use the following data to answer the questions below. Assume a perfectly competitive product market.

Units of Labor         Units of Output

0                                  0

1                                  8

2                                  12

3                                  17

4                                  21

5                                  23

1. Calculate the total revenue product and marginal revenue product at each level of labor input if output sells for \$4 per unit.
2. If the wage rate is \$15 per hour, how many units of labor will be hired? Explain your answer.

Criteria

• This assignment should be completed in the Word template provided under Course Documents.
• It should be written in Standard English and demonstrate exceptional content, organization, style, and grammar and mechanics.
• Respond to the questions in a thorough manner, providing specific examples where asked.
• Add references in APA format as a separate page at the end of your paper.
• Your sources and content should follow proper APA format (A title page is not required). Review the APA formats found in the Writing Resources accessed through the Academic Success Center within the Academic Tools area of the course.
• Review the grading rubric to ensure all points have been captured in the paper.