Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 - 5W. The government has passed a law that subsidizes wages by $1 per hour. The equilibrium wage and quantity of labor with the subsidy is?

$4 and 15 workers respectively.
$2.5 and 12.5 workers respectively.
$3.5 and 17.5 workers respectively.
$3.5 and 10 workers respectively.

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  1. To solve, I rewrote the supply and demand equations as W=f(Q). So: Ws = Qs/5 and Wd = 6 - Q/5. (So far, this is just algebra)
    Now then, the $1 per worker subsidy has the effect of lowering the supply equation by $1 for all levels.
    So, Ws' = Qs/5 - 1. Now set supply = demand and solve for Q.
    That is Q/5-1 = 6-Q/5

    Take it from here

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