1. (10 marks) Assume a conventional one sided search model of horizontal vu and
ID: 1167091 • Letter: 1
Question
1. (10 marks) Assume a conventional one sided search model of horizontal vu and increasing function of e(w) and an equilibrium condition of s(1-u)= upH (refer to the textbook Figure 6.12). The initial conditions are: v 1 and ve -2vw, and s 0.1and p H 0.5 a. Determine the wage rate and the unemployment rate with the given conditions. Graphically show the wage and the unemployment rates. b. Now assume that the job separation rate is increased to 0.2 and that no change in the flow of labor from unemployment to employment (no change in hpH). and because of the increase in the job separation rate, ve w. Determine the new equilibrium wage and unemployment. Graphically show all the new equilibrium conditions c. Explain the economic logics behind the movements of wage and unemployment you obtain from the above #b.Explanation / Answer
a) The wage rate and the employment rate with the given conditions, which directed that the wage rate of the employment 0.2.
b) If the job seperation rate is increased and without changing the flow of the labour unemployment, then the new wage rate is at 0.04 and the there is no change in the unempoyment rate.
c) According to the economic termonology the movement of the wage and the unemployment is inverse relationship because, as the rate of wage changes with the intorduction of the new technology and replace the human force work by machines it decline the level of wmployment and the wage rate will be increase through the minimising of the employment rate through internal adjustment. This will reduce the employment level.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.