Suppose that the wage of labor in the urban sector equals 30 and the wage of labor in the rural sector equals 20. The total labor force is 35. In addition, the number of employed workers in the rural sector is twice as large as the number of employed workers in the urban sector. The markets for labor in the urban sectors and in the rural sector are defined as in the lecture notes.

a) Calculate the opportunity cost of leaving the rural sector as a function of the probability of finding a job in the urban sector.

b)Briefly describe the nature of the trade-off faced by a rural worker.

c) Calculate the number of employed workers in the urban sector if workers in the rural sector are paid just enough to stay in the rural sector. Show ALL steps.

d)Briefly explain why neither of the two labor markets is in equilibrium if the probability of finding a job in the urban sector is 80 %.

e)Briefly discuss the validity of the statement: "New jobs in the urban sector increase unemployment in the urban sector if the probability of finding a job in the urban sector is 80 %."