Answer Happy

1. Consider the table below that shows labour demand and supply vary with the real wage in a small economy. (000) Real wage ($/hour) 1 2 3 4 5 6 Labour demand 130 120 110 100 90 80 Job acceptances 70 80 90 100 110 Labour demand and supply 120 Labour force 101 108 115 122 129 136 Suppose the real wage is fixed at $5 per hour a) What is the level of employment? b) Calculate the level of unemployment c) How much of the unemployment is involuntary and how much is voluntary? Suppose now that workers base their decisions on take-home pay, that the real wage is flexible and that workers are paying $ 2 in income tax. d) What is the equilibrium wage as paid by firms and the net take-home pay of those employed? e) What are the levels of employment and unemployment? Is there excess demand for labour? f) How much of the unemployment is involuntary and how much is voluntary? Finally, suppose that income tax is removed. g) What is equilibrium real wage? h) What are the levels of employment and unemployment? By how much has unemployment changed? i) How much of the remaining unemployment is involuntary and how much is voluntary?