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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Full answer to question a and b