1.

Suppose the market for part-time workers is perfectly competitive, the supply curve (𝑆 represents
the number of hours, 𝐻, part-time workers are willing to work at various hourly wage levels, 𝑊)
and the demand curve (𝐷 represents the number of hours, 𝐻, firms are willing to hire part-time
workers at various hourly wage levels, 𝑊) are shown in the graph below. You must answer this
question according to lecture discussion. Show your step-by-step calculation and
explanation (if required) must be related to the graph or a zero will be assigned.

(a) Show how to determine the equilibrium hourly wage 𝑊 𝑒 and number of hours 𝐻 𝑒 part-time
workers work, and calculate total income 𝑇𝐼 𝑒 part-time workers earn. (2 marks)

(b) Suppose firms are willing to pay 9 dollars more on hourly wages when they hire part-time workers.
At the same time, part-time workers are willing to work 50 hours more at every level of hourly
wage. Show how to incorporate these changes to the graph. Determine the new equilibrium hourly
wage 𝑊 and number of hours 𝐻 part-time workers work, and calculate total income 𝑇𝐼 part-time
workers earn. Do part-time workers earn more or less income compared to (a)? Explain that using
the “tug of war” idea discussed in class. (4 marks)

(c) Explain how this market adjusts from the initial equilibrium in part (a) to the new equilibrium in
part (b) according to lecture discussion. Hint: Answer the three questions regarding adjustment
mechanism. (4 marks)