Question

Consider an economy with two sectors: manufacturing and services. Demand for labor in manufacturing and services are described by these equations L=200-6W

Answer 1

Answer:

Step-by-step explanation:

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My answers:

a, If workers are free to move between sectors, the wages in each sector will be equal. If wages are not equal, the workers will be motivated to move to sectors with higher wages and this will make a higher salary reduction, and lower wages will increase until they equal.

b. Since there are 100 workers in total,we have:

Ls =100- Lm = 100 -4w

Lm = 4w

Now set this equal to the labor demand for manufacturing equation and solve for w:

4w = 200 - 6w

w = $20.

Substitute w =20 into the two labor demand equations, we have LM = 80 and LS i= 20

c. If the wage in manufacturing is equal to $25 then

Lm=200-6(25) = 50

d. There are now Ls = 50 workers employed in the service sector and the wage:

Ls=100-4Ws

<=> 50 = 100 -4Ws

<=> Ws = 12.5

e. Wages in the manufacturing sector will remain at 25 dollars and jobs will remain at 50. If wages are reserved for the service sector is 15 dollars, then jobs in the service sector will be 40. Therefore 10 unemployed and the unemployment rate is 10%.