Under the assumptions of perfect information and cost-less mobility Illustrate h
ID: 1220778 • Letter: U
Question
Under the assumptions of perfect information and cost-less mobility Illustrate how labor will flow between these two countries: Using your graphical analysis above, summarize the result of migration for each country (i.e., what happened to the wage rates, employment levels, and output gains or losses). Is there an efficiency gain when combining the outputs of these two countries? If the wage differential (W_A -W_B) was due to compensating wage differentials rather than transitional wages would the result differ? If so, why?Explanation / Answer
d) As the wage is higher in country A, the laborers will move from country B to country A. This will cause country A's wage to decrease due to huge supply of labor and simultaneously country B's wage to increase due to lack of labor in Country B. This will cause the wage to equilibriate where both the wages would be same and migration would stop.
e)Due to migration, the wages in Country A will decrease and hence the employment will increase with the increase in output. In Country B, the wages will increase and hence the employment will decrease with the decrease in output. The output gain in Country A will be same as output loss in Country B as the slopes of both the countries are same.Thus there is no efficiency gains.
f)If the wage differential was due to compensating wage differential then people would prefer to stay at the present situation and would not migrate. Thus wages would not become same and thus the result would definitely differ. In this case peoples preference matters and people from low wages will not migrate to high wages country.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.