Question

Table 14.12 shows the quantity demanded and supplied in the labor market for driving city buses in the town of Unionville, where all the bus drivers belong to a union.

Wage per hour	Quantity of workers demanded	Quantity of workers supplied
\(14	12,000	6,000
\)16	10,000	7,000
\(18	8,000	8,000
\)20	6,000	9,000
\(22	4,000	10,000
\)24	2,000	11,000

1. What would the equilibrium wage and quantity be in this market if no union existed?
2. Assume that the union has enough negotiating power to raise the wage to $4 per hour higher than it would otherwise be. Is there now excess demand or excess supply of labor?

Short answer

1. The equilibrium wage will be $18 and the quantity will be 8,000.
2. There is an excess supply of labor.

Step-by-step solution

Part (a) Step 1: Introduction

A labor union is a collection of employees that band together to bargain with companies about pay and working conditions.

Part (a) Step 2: Explanation

The equilibrium quantity is achieved when the quantity of labor supplied equals the quantity of labor demanded. In this case, the equilibrium quantity is 8,000 laborers. And, the corresponding wage rate is the equilibrium wage rate. Thus, the equilibrium wage rate is $18 without the existence of a union.

Part (b) Step 1: Introduction

A labor union is a collection of employees that band together to bargain with companies about pay and working conditions.

Part (b) Step 2: Explanation

The equilibrium wage rate is $18 but if it has increased by $4 per hour due to the negotiation of the union, the wage rate now will be $22. When the wage rate is $22, the quantity of workers demanded is 4,000 and the quantity of workers supplied is 10,000. Thus, there is an excess supply of labor at this wage rate.