This is from a practical exercise. The answers are below BUT, I do not know how they came up with them. I'd like a step-by-step explanation of how they got the answers.
Practical Exercise 1:
Assume the demand for teachers (Ld) in a school is given by the following equation: W = 1700 - 2LD and the supply of teachers (LS) depends on whether the school is a public school or private school:
Public School Supply: W = 4LS + 800
Private School Supply: W = 4LS + 500
- What is the equilibrium weekly wage and quantity of teachers in each school?
- What is the pay difference between the two schools?
- If this was a perfectly competitive market, what should happen to the quantity and wage of private school teachers?
- 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:
- Public: W* = 1400; L* = 150 and Private: W* = 1300; L* = 200
- $100
- Quantity decreases and wages increase
- Quantity increases and wages decrease