4. Wage subsidy

Consider the labor market for low-wage workers in the country of Typonia. Employers' demand

for low-wage workers in Typonia is:

QD = 100 - 5w

where w is the hourly wage in dollars and Qo is the quantity of low-wage labor demanded (in

millions of worker-hours). The supply of low-wage labor is:

Qs = 30 + 2w

where Qs is the quantity of low-wage labor supplied (in millions of worker-hours)

a. What is the market equilibrium wage and level of employment among

low-wage workers in Typonia?

In response to concerns about financial hardships facing low-wage workers, policymakers in

Typonia implement a wage subsidy policy. Under the policy, the Typonian government will

provide a $7/hour subsidy to employers for each low-wage worker they employ.

b. What would be the new wage received by low-wage workers under the

wage subsidy policy?

c. What wage will employers pay under the wage subsidy policy?

d. How much unemployment (in worker-hours) will be induced, if any, as a

result of the $7/hour subsidy?

e. What will be the cost to government?