- (5+20=25 pts) Consider a New York law firm which produces legal services uses two
types of labor, lawyers and para–legal workers, which are imperfect substitutes in
production. Now para–legal workers persuade the New York state legislature that
they should be licenced, and can require all future para–legals to obtain an expensive
master’s degree.
- (a) Show on a graph the impact (after a few years) of licencing on para–legal wages.
- (b) Given this, show on a different graph the impact of licencing on the demand for
lawyers. You should show substitution and scale effects and accompany the graph
with intuition
-
(3+3+5+9=20 pts) The demand for labor and supply of labor in Severodvinsk, Russia
are:
Demand curve : w = 20, 000 − 60L (1)
Supply curve : w = 14, 000 + 60L. (2)
- (a) Carefully draw these curves on a well–labelled graph.
- (b) What would w and L be if the labor market (and product market) were perfectly
competitive (use algebra)? Show these points on the graph.
- (c) In fact, everyone in Severodvinsk works for the nuclear submarine manufacturer.
Add to the graph (and label) a line that helps determine w and L.
- (d) What wage will it pay and how many people will be hired (use algebra)? Show
your answers on the graph.
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