Consider the effects of a natural disaster like hurricane Katrina on a metropolitan economy. In the initial (pre hurricane) equilibrium, total employment in the metropolitan area is 500,000 workers and the daily wage is $100. The price elasticity of supply of labor is 4.0 and the price elasticity of demand for labor is ?1.0. Suppose the hurricane reduces labor supply (a horizontal shift of the supply curve) by 100,000 workers. a. Use a supply-demand graph of the urban labor market to show the effects of the hurricane. percent percent (to $ ) b. The equilibrium wage [increases, decreases] by ______ percent (to $ ) computed as. . . . c. The equilibrium employment [increases, decreases] by ______ percent (to ______ workers), computed as. . . . d. The reduction in the equilibrium employment is [greater, less] than the initial decrease in labor supply because. . . .

QUESTION:

Katrina Decreases Labor Supply

Consider the effects of a natural disaster like hurricane Katrina on a metropolitan economy. In the initial (pre hurricane) equilibrium, total employment in the metropolitan area is 500,000 workers and the daily wage is $100. The price elasticity of supply of labor is 4.0 and the price elasticity of demand for labor is 1.0. Suppose the hurricane reduces labor supply (a horizontal shift of the supply curve) by 100,000 workers.

a. Use a supply-demand graph of the urban labor market to show the effects of the hurricane. percent (to $ )

b. The equilibrium wage [increases, decreases] by ______ percent (to $ ) computed as. . . .

c. The equilibrium employment [increases, decreases] by ______ percent (to ______ workers), computed as. . . .

d. The reduction in the equilibrium employment is [greater, less] than the initial decrease in labor supply because. . . .