Consider an economy with two labour markets, neither of which is unionized. Now suppose a union is established in one market. (Each part require a diagram; you may draw both in part a) and write only the explanation in part b)

a.Show the effect of the union on the market in which it is formed. In what sense is the quantity of lab our employed in this market an inefficient quantity?

b.Show the effect of the union on the non-unionized market. What happens to the equilibrium wage in this market?