If the supply of unskilled domestic labor and the supply of unskilled immigrant
ID: 1103792 • Letter: I
Question
If the supply of unskilled domestic labor and the supply of unskilled immigrant labor are both perfectly inelastic, then the immigration surplus to the domestic economy can be estimated by:
A.
The number of immigrants times the new wage rate.
B.
The total number of workers under immigration times the difference in the old and new wage rates.
C.
One half of the number of immigrants times the new wage rate.
D.
One half of the number of immigrants times the difference in the old and new wage rates.
E.
National income minus government spending on immigration programs.
A.
The number of immigrants times the new wage rate.
Explanation / Answer
One half of the number of immigrants times the difference in the old and new wage rates.
Immigration will increase the labor supply by adding to the current labor force, hence wages will go down and subsequently labor demand will increase.
The supply curve is vertical and demand curve is downward sloping. This makes a triangle between change in labor and change in the wage rate. SUrplus = Area of triangle = 1/2 x change in labor x change in wage
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