1. Consider a perfect competitive industry with a labor supply given by Es=6w-4 and a labor demand is given by Ed=28-2w. Where E is the level of employment and w is the wage.
a. What is the equilibrium wage and employment if the labor market is competitive?
b. Suppose the government sets a payroll subsidy of $2 on firms. Find the new labor demand function.
c. Find the new market equilibrium and identify the wage workers receive after the Imposition of the subsidy, the new cost for the firm to hire a worker, and the new level of employment.
d. Show your result graphically, identifying as many points as you can.
e. Compute the change in producer surplus, change in worker surplus, the total cost of the subsidy for the government, and the deadweight loss to society that results from the imposition of the subsidy.