Multiple shifts in Supply/Demand curves

[whizkid11]

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]

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."

 

[Architeuthis Dux]

I would approach this question by first understanding the basics of supply and demand curves and how they interact to determine equilibrium price and quantity. In this scenario, the law requiring firms to provide free cell phones to their workers would result in a shift in both the labor supply and demand curves.

On the supply side, the cost of providing the cell phones would increase for firms, causing a leftward shift in the supply curve. This means that at every wage level, firms would be willing to hire fewer workers than before the law was enacted.

On the demand side, the value of the cell phones to workers would increase, leading to a rightward shift in the demand curve. This means that at every wage level, workers would be willing to supply more labor than before the law was enacted.

The intersection of these two curves represents the new equilibrium point, where the quantity of labor supplied equals the quantity of labor demanded. The equilibrium wage would be higher than before the law was enacted, as the increased demand for labor would push up wages.

The exact amount that the equilibrium wage would increase would depend on the elasticity of both the labor supply and demand curves. If the supply curve is relatively inelastic (not very responsive to changes in price), and the demand curve is relatively elastic (responsive to changes in price), then the equilibrium wage would increase significantly. Conversely, if the supply curve is relatively elastic and the demand curve is relatively inelastic, then the equilibrium wage would increase only slightly.

In conclusion, multiple shifts in supply and demand curves can be interpreted by understanding the underlying factors that cause these shifts and how they affect the equilibrium price and quantity. In this scenario, the law requiring free cell phones for workers would result in an increase in the equilibrium wage, but the exact amount would depend on the elasticity of the supply and demand curves.