1. Rural-Urban Migration Consider the following variation of the basic Harris-To
ID: 1186530 • Letter: 1
Question
1. Rural-Urban Migration
Consider the following variation of the basic Harris-Todaro Model. Assume that the going wage in agriculture is normalized at 1. The wage in the formal urban sector is 3. The wage in the informal sector is 0.5. Additionally, 20% of working adults who live in the city are employed in the formal sector. Also, assume that the discount rate is 10% and that the lifetime of an individual is only 2 periods. Consider the following situations: [4 points in total]
a) Upon migrating to the city, the individual could participate in a training program in period 1 that would take up all of their time, but would increase their chances of getting a job in the formal sector to 63%.
Explanation / Answer
A.) The expected wage in the nearby city is $650*.8 + 100*.2 (since the people who don't get a job in the formal sector can then take an informal one) = $540B.) MR of Person 1 = $800MR of Person 2 = $800MR of Person 3 = $1400MR of Person 4 = -$700MR of Person 5 = $200The marginal revenue of person 4 and 5 are less than $540, so they will migrate to the city, meaning 2 members will chose to migrate.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.