Economists argue that temporary factor-price differentials tend to be eroded by factor mobility. Consider the two markets for sheet-iron workers and steel-pipe workers in the same region. Suppose both markets are competitive. We begin in a situation in which both sheet-iron workers and steel-pipe workers earn $20 per hour. Assume that workers can switch easily between the two jobs.

a.Draw 2 separate diagrams showing the supply and demand for labour in each of the two markets - sheet-iron market and steep-pipe market.

b.Now suppose there is a sharp increase in the demand for steel pipes. Explain in words and also illustrate on your graph in part (a) what happens in the market for steel-pipe workers. If the employment of steel-pipe workers increased in part (b), explain where the extra workers came from.