Consider a tropical island economy with only two sectors: souvenir manufacturing and hospitality (hotels). Both sectors are perfectly competitive, and workers are equally able and willing to work in either industry. Only foreign tourists demand souvenirs and hotel stays, so changes in the domestic labor market do not affect the product demand curve in either sector.

Suppose a union forms in the souvenir manufacturing industry. The union limits its membership to less than the number of workers employed before the union formed and forces all employers in the industry to hire only union workers.

Show the effect of unionization in the souvenir industry on the labor market for souvenir manufacturers. Labor Market for Souvenir Manufacturers LS 2 24 O 20 LS1 Labor demand 16 Labor supply WAGE RATE (Dollars per hour) 12 8 Labor demand 4 0 0 20 40 60 80 100 120 QUANTITY OF LABOR (Souvenir manufacturers)Labor Market for Hospitality Workers 24 O 20 LS, Labor demand 16 Labor supply 12 LS2 WAGE RATE (Dollars per hour) 8 Labor demand 4 0 20 40 60 80 100 120 QUANTITY OF LABOR (Hospitality workers)