Question

Consider a situation in which there are just two countries: an Origin, and a Destination country. Labor demand in the origin country is given by: wo=10-Lo Labor demand in the destination country is given by: wd=14-Ld. where Lo and Ld indicate the number of workers in the origin and destination countries, respectively.

Initially, there are 5 workers in the destination country and 5 workers in the origin country. Assume that labor supply is perfectly inelastic in both countries (that is, that labor supply can be represented through a vertical line).

a. Consider first the case in which individuals are not able to change their country of residence. What would be the equilibrium wage in the destination and in the origin countries? Illustrate your answer with a graph.

b. Consider next the case in which workers can freely migrate across countries (at no cost). What would be the equilibrium wage in the destination and in the origin country? How many workers (if any) would migrate from the origin to the destination country? Illustrate your answer with a graph

Answer 1

Answer mu * Given collect from the data * let us assume that the equations are * Now we have to consider the data as followed * To consider the situation has and two countries of ongin destination country Now Wo= 10-to and hd = 14-16 Édestination country) @ we know that the case in individuals are not able to change in to cheir country of the residence Destination country where = 5 How wd = 14 old =) wd = 14-5=9 - luk y wage Labor 14 - S WD = 10-lo 14 - 10-5 = 5 -> origin coutry rol ius

TO consides the next case of workey can be foreley have migrale across countries > it is too workers can be origin migrate to distrubution - They are origin countries is 5-2 = 3 and destination country is 5+2=7 Now We = 10-3=y and wd = 14 -7= 7 then and destination is wo=7 and L=7 origin is wo=7 & L=3 Ebro | u : 3 hom I ost c -- - 5 7 cabou Destination Cabour 345 Origin e THE END