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 labor in each of the two markets - sheet-iron market and steep-pipe market.(8 marks total - 4 marks each)

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. (8 marks)

c.If the employment of steel-pipe workers increased in part (b), explain where the extra workers came from. (4 marks)

d.What effect does the event in part (b) have on the market for sheet-iron workers? Explain your answer in words and illustrate on your graph drawn in part (a).(8 marks)

e.What is the long-run effect of the shock on the relative wages in the two types of jobs? (2 marks)