Suppose a new law requires every college professor in your c

Suppose a new law requires every college professor in your city to wear a special uniform while teaching. These uniforms must be rented from the mayor’s brother at a cost of $1 per hour. With the law in effect, universities pay professors $5.40 per hour.

For each part your answer should be an exact number if possible, or a range of numbers otherwise. Hint: Remember that the professors are the suppliers of teaching services (in hrs) and universities are the demanders.

a) If the law were repealed, how much would professors get paid?

b) If the law were replaced by a new law requiring the universities to pay for the uniforms (at the same $1 per hour), how much would professors get paid?

Solution

(a) When law is in effect, universities pay the professors $5.4 per hour.

So, when law is repealed, cost of supply decreases by $1, so supply of teaching services will increase. Professors\' hourly pay will fall, most likely to the level of $5.4 - $1 = $4.4 per hour.

(b) With the new law, universities will face higher cost, so demand will fall. Hourly rate of professors will decrease, most likely by $1 to the level of $4.4.