Total labour supply is fixed at 100. Output is produced using only labour and the labour demand curve in the urban area is LDu=100-4w and in the rural area is: LDr=100-4w. There is a minimum wage of 14 in the urban area, but the wage is set competitively in the rural area. We assume that there is no unemployment in this model. Labour markets are competitive. (a) What is the wage and level of employment in the urban and rural sector? b) If the minimum wage was abolished, what would be the total gain/loss to (1) workers that were in the urban area before the change, (2) workers that were in the rural area before the change (c) What would be the total change in output if the minimum wage was abolished.

Total labour supply is fixed at 100. Output is produced using only labour and the labour demand curve in the urban area is LDu=100-4w and in the rural area is: LDr=100-4w. There is a minimum wage of 14 in the urban area, but the wage is set competitively in the rural area. We assume that there is no unemployment in this model. Labour markets are competitive. (a) What is the wage and level of employment in the urban and rural sector? b) If the minimum wage was abolished, what would be the total gain/loss to (1) workers that were in the urban area before the change, (2) workers that were in the rural area before the change (c) What would be the total change in output if the minimum wage was abolished.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter11: Labor Markets

Section: Chapter Questions

Problem 13SQ

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