Consider a state, its economy is largely based on two sectors, e.g. manufacturing and services. Most of local labor forces are employed in either automobile manufacturers or traditional service industries (catering, education, retail and state employees). At state level, total employment is 1.6 million (or 1600 thousand). Demand functions for labor force in manufacturing (M) and service (S) are given as following.Demand for labor in manufacturing (thousand), with wage as Wm ($/week). M = 4000 – 3 * Wm.Demand for labor in service (thousand), with wage as Ws ($/week). S = 2000 – 2 * Ws. As above, total employed labor is 1,600 (thousand), so we have M + S = 1600 (thousand). Then finish the following questions. (1) If labor forces are free to move between manufacturing and service sectors, what relationship is between wages in manufacture and service sectors, Wm and Ws (higher, lower or the same)? And why? (2) Following the condition in (1) which adjusts to equilibrate total labor supply and total labor demand in that state. Calculate wages in the two sectors (Wm and Ws) and the employment in each sector (M and S).

Given:- Two sectors of the economy are:- 1) Manufacturing 2) services Total employment= 1600…

Answered: Consider a state, its economy is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a state, its economy is largely based on two sectors, e.g. manufacturing and services. Most of local labor forces are employed in either automobile manufacturers or traditional service industries (catering, education, retail and state employees). At state level, total employment is 1.6 million (or 1600 thousand). Demand functions for labor force in manufacturing (M) and service (S) are given as following.

Demand for labor in manufacturing (thousand), with wage as W_m ($/week).

M = 4000 – 3 * W_m.

Demand for labor in service (thousand), with wage as W_s ($/week).

S = 2000 – 2 * W_s.

As above, total employed labor is 1,600 (thousand), so we have M + S = 1600 (thousand). Then finish the following questions.

(1) If labor forces are free to move between manufacturing and service sectors, what relationship is between wages in manufacture and service sectors, W_m and W_s (higher, lower or the same)? And why?

(2) Following the condition in (1) which adjusts to equilibrate total labor supply and total labor demand in that state. Calculate wages in the two sectors (W_m and W_s) and the employment in each sector (M and S).

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