Question

Two neighboring communities have different labor demand functions but share the same inelastic labor force of 200,000 workers.

Lᴬ =150,000−500wᴬ
Lᴮ =150,000−1500wᴮ ​
i. What would the market wage be if workers did not have a preference between the two communities? ii. Assume instead that workers prefer to work in community A and would accept a $5 lower wage to do so. What would the wage in each community be?

Answer 1

In this scenario, we have two neighboring communities with different labor demand functions but a shared inelastic labor force of 200,000 workers. We can find the market wage by setting the labor demand and supply functions equal to each other and solving for the wage. If workers prefer community A and would accept a lower wage to work there, the wage in community A would be lower than the market wage.

Step-by-step explanation:

In this scenario, we have two neighboring communities with different labor demand functions but a shared inelastic labor force of 200,000 workers.

i. To find the market wage when workers do not have a preference between the two communities, we need to find the equilibrium wage and quantity in the market. We can do this by setting the labor demand and supply functions equal to each other and solving for the wage.

ii. If workers prefer to work in community A and would accept a $5 lower wage to do so, the wage in community A would be $5 lower than the market wage, and the wage in community B would be the same as the market wage.