Problem: Suppose that in Seattle the equilibrium employment is 1 million workers, and the equilibrium wage is $100 per day. The elasticity of demand for labor is -2, and the elasticity of supply of labor is 3. The high-tech employment multiplier is 5. The high-tech employment multiplier is the change in total demanded employment per unit change in high-tech employment. Suppose the demand for labor used in the production of high tech industries increases by 10,000 jobs. Clarification note: "Computed as" just means that you should show your work.
1. Use a supply-demand graph of the urban labor market to show the effects of the increase in the demand for labor.
2. The equilibrium wage [increases, decreases] by percent (to dollars a day), computed as..
3. The equilibrium employment [increases, decreases] by percent (to workers), computed as ..