Suppose that in India, a minimum wage is established in the modern sector above the market clearing wage, while the rural traditional wage is market determined at a lower level thanin the modern sector.

1. Describe the impact of this policy on the rural labour force, urban unemployment, and the rural wage.
2. Will the modern sector wage be equal to the traditional sector wage after markets equilibrate through migration? Explain.
3. What effect might moving costs have on the equilibrium you described in part (b)?
4. What effect might the introduction of factories to rural areas have on the equilibrium you

described in part (b)?

5.Suppose that the rural wage is $2 per day. Urban modern sector employment can be obtained with a probability of 0.24 and pays $4 per day. The urban informal sector pays $1 per day. Using this information, and making assumptions as needed, predict whether there will be any rural-to-urban or urban-to-rural migration? Explain your reasoning, stating explicitly any simplifying assumptions, and show all your work.