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Consider a situation in which there are just two countries: A and B Labor demand in country A is given by: W.=14-L, Labor demand in
Consider a situation in which there are just two countries: A and B Labor demand in country A is given by: W.=14-L, Labor demand in country B is given by: Wh=8-Lh where L, and L indicate the number of workers in A and B, respectively. Initially, there are 5 workers in A and 5 workers in B. Assume that labor supply is perfectly inelastic in both countries (that is, that labor supply can be represented through a vertical line). a. Consider first the case in which individuals are not able to change their country of residence. What would be the equilibrium wage in each of the countries? b. Consider next the case in which workers can freely migrate across countries (at no cost). What would be the equilibrium wage in country A? What would be the equilibrium wage in country B? How many workers (if any) would migrate? From where to where? The government in country B is worried that emigration would result in lower profits for local companies. As a result, the government is considering passing a law that would prohibit workers from emigrating to country A. Workers in country B have started collecting money to finance a campaign to discourage the government from passing such a law. At the same time, owners of other factors of production in country B have started collecting money to finance a campaign to encourage the government to pass such a law. c. Assume that: (1) The government will implement whatever policy the group that has collected the most money prefers, and (2) Workers and owners of other factors of production are free to contribute as much they want for their respective campaigns. Will the law pass? Explain
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