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).

Assume that the goal of the government is to maximize the money that they obtain from selling “migration permits” to workers in the origin country. The government is deciding between two possible prices for the migration permit: 2$ or 10$. Which of these two prices would you recommend to the government? Why?

Assume that you are an owner of “other factors of production” (capital, land, etc) in the destination country. If you could choose any price greater or equal than zero, how much would you like the government to charge for the “migration permit”? Why

Answer 1

Giveni - consideo a situation in which countie: an Origin and a Deshration just two there are country. a) consider forst the case in which individuals are not able to change country of residence destination and in the origin countries? 1-} eu -- @ wage 5 Lo 14 Labour Destination and = iu.ld Lg=5 cud = 14.5 Origin wo = 10-to Ls = 5 WO - 10-5

wage 10 Labor b) How many origin to the a geh. workers (if any) would migrate from the destination country ? Illustrate your answer with Hour Now when keep migrating workey can migrate freely. They will until wage rate in both countries is equal. two woorker from origin migrate to This happens when destination. => then labor supply in origin become 5-2=3 & labor supply in destination become 5+2=4 Wo310-34 Wd = 14-7=4 At equillibrium origin wo = 762=3 & destination wd = 78 L = 4

LS LS لیا وا 10 Labor Ś Destination 345 origin