Practical Exercise 1:

Assume the demand for teachers (Ld) in a school is given by the following equation: W = 1700 - 2L_D and the supply of teachers (L_S) depends on whether the school is a public school or private school:

Public School Supply: W = 4L_S + 800

Private School Supply: W = 4L_S + 500

1. What is the equilibrium weekly wage and quantity of teachers in each school?
2. What is the pay difference between the two schools?
3. If this was a perfectly competitive market, what should happen to the quantity and wage of private school teachers?
4. If this was a perfectly competitive market, what should happen to the quantity and wage of public school teachers?

The book answers are as follows:

BOOK ANSWER:

1. Public: W* = 1400; L* = 150 and Private: W* = 1300; L* = 200
2. $100
3. Quantity decreases and wages increase
4. Quantity increases and wages decrease