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Consider an economy in which there are initially no labour unions. When labour unions are introduced,...

Consider an economy in which there are initially no labour unions. When labour unions are introduced, they successfully bargain collective agreements in about half of firms in the economy.

a. Illustrate the effect of these unions on wage and employment.

b. Do unions cause unemployment in this example? Explain and illustrate in your diagram (you can use the same diagram(s) as in (a) and/or add diagrams as needed).

c. Does your answer in (b) depend on (i) the elasticity of labour demand; (ii) the elasticity of supply, and/or (iii) the level of the minimum wage? Explain and illustrate as appropriate

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Answer #1

TA a Introducing labour union is similar to centroducing a price floor in the market of labor . The price floor is a minimde Yes, it caures unemployment unemployment pers 8, go As the price increases from Р. ФР, , kа dаша (имаш shifted from to ta& elasticity is The dependant, higher the elasticity , greater the meneploy muut. The elasticity of supply. is also dependant

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