Unit 3 Assignment: Elasticity and Labor 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 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 inelastic over a shorter or a longer
period of time? Explain.
2. Is the price elasticity of supply, in general, more inelastic over a shorter or a longer
period of time? Explain.
3. Is the supply curve for labor usually upward sloping? Explain.
4. 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 î age rate is depicted
on the 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.)
a. What are the initial equilibrium wage rate and employment level?
b. Other things held constant, assume that the price of a substitute resource
decreases.
i.
What will happen to the demand for labor? Will it increase or
decrease?
ii.
What are the new equilibrium wage rate and employment level?
c. Other things held constant, suppose that demand for the final product
increases.
i.
Using the labor demand curve D1 as your starting point, what happens
to the demand for labor?
ii.
What are the new equilibrium wage rate and employment level?
d. 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.
5. Use the following data to answer the questions below. Assume a perfectly
competitive product market.
a. Calculate the total revenue product and marginal revenue product at each
level of labor input if output sells for $10 per unit.
b. If the wage rate is $20 per hour, how many units of labor will be hired?
Explain your answer.
Criteria
•
•
This assignment should be completed in Microsoft Word. 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 in a separate page at the end of your paper.
Your sources and content should follow proper APA format (though a title page is not
required). Review the APA format information found in the Writing Resources,
accessed through the Academic Success Center within the Academic Tools area of
the course.

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