I'm trying to figure out how to best interpret multiple shifts in a supply/demand curve. Suppose that a new law requires every firm to provide its workers with free cell phones. The cell phones are worth $200 a year to the works and cost the firms $500 a year to provide. On a labor supply/demand curve, how do I know how much the equilibrium wage goes up or down after the law is enacted?
EnumaElish
Oct9-08, 12:46 PM
Ask yourself the question: what does the labor supply curve indicate for any given quantity of labor per year? "The least (marginal) wage at which ..." Then ask: if each worker is given a $200 that does not count as wage, at what wage will the (marginal) worker supply the same amount of annual labor? (Hint: at a somewhat lower wage than he or she previously would agree to... Can you say how much lower?) Finally, decide whether that means an upward or a downward shift for the supply curve, and by how much.
Then move on to the demand curve, and follow the same steps above, except replace $200 with $500, "worker" with "employer," and "is given" with "gives."