Chapter 1. Chapter 7 – Question 7

Step 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Question

Consider an economy with two sectors: manufacturing and services. Demand for labor in manufacturing and services are described by these equations:

Lm = 1,300 – 20Wm

Ls = 1,200 – 20Ws

where L is labor (in number of workers), W is the wage (in pesos), and the subscripts denote the sector. The economy has 500 workers who are willing and able to work in either sector.

95jly12JY0uT2JSk9IaeXDP/JI100sFfZSG4rLnulZN8f6YH67r3AoylRI8PLg5QysSmr/PYKCHKp8iiLeRK78rPzraPzgH80+IAYZ4W11vmBXhc7KTsiuPXjZNT6lP3kgY2sfC2ntqvRIl5a3kClYoDQO9+b0PnrJVueTmpnMW99Mwar9KwvuJEZ6D2HTHqbdl1wpNtm1I6f5lMMUUvLz/ZgqV7wAqJxeMnybslahUBEdXLjru6Yq18omPkzo82BVdKuERLHJELOeyl7oqpaN1mXRg6zaWvlN8ZhRQbQMXioKRFSy9nVYflm1uMHyoxM2vLzyKXs85AQ3+ikteZsEFt+4ZA5vz/lqH4xMk7r/lQ+bVcgp1gIWyey7L6PP++QwAiZPdjJP8oOjj9vpom9OHQwpTUhE0LUNQQv5U07ao=
Review text pages 51-53 from Chapter 3 for a discussion of equilibrium in competitive factor markets

Question

b. Suppose that the condition in part (a) holds and wages adjust to equilibrate labor supply and labor demand. Calculate the wage and employment in each sector.

Wage = fwIPnBkWdu4= pesos

Employment in the Manufacturing Sector = Y2x7Rp8uOjs= workers

Employment in the Service Sector = ygJZKffxRWs= workers

Review text pages 51-53 from Chapter 3 for a discussion of equilibrium in competitive factor markets
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Step 2

Question

Consider an economy with two sectors: manufacturing and services. Demand for labor in manufacturing and services are described by these equations:

Lm = 1,300 – 20Wm

Ls = 1,200 – 20Ws

where L is labor (in number of workers), W is the wage (in pesos), and the subscripts denote the sector. The economy has 500 workers who are willing and able to work in either sector.

c. Suppose a union establishes itself in manufacturing and pushes the manufacturing wage to 60 pesos. Calculate employment in manufacturing.

Employment in Manufacturing = b0g0iQ1whKk= workers

Review text pages 183-187 for a discussion of structural unemployment, wage rigidity, and labor unions.

Question

d. In the aftermath of the unionization of manufacturing, all workers who cannot get the highly paid union jobs move to the service sector. Calculate the wage and employment in services.

Employment in the Service Sector = ogGXSFbg9qI= workers

Wage in the Service Sector = tBxBgtJuS+A= pesos

Review text pages 183-187 for a discussion of structural unemployment, wage rigidity, and labor unions.
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Step 3

Question

Consider an economy with two sectors: manufacturing and services. Demand for labor in manufacturing and services are described by these equations:

Lm = 1,300 – 20Wm

Ls = 1,200 – 20Ws

where L is labor (in number of workers), W is the wage (in pesos), and the subscripts denote the sector. The economy has 500 workers who are willing and able to work in either sector.

e. Now suppose that workers have a reservation wage of 45 pesos—that is, rather than taking a job at a wage below 45 pesos, they would rather wait for a 60 peso union job to open up. Calculate the wage and employment in each sector. What is the economy’s unemployment rate

Wage in the Manufacturing Sector = 05dveybDphA= pesos

Employment in the Manufacturing Sector = b0g0iQ1whKk= workers

Wage in the Service Sector = oayE157RQBQ= pesos

Employment in the Service Sector = Y2x7Rp8uOjs= workers

Unemployment Rate = j1UM5l5D9h+lMsPFUzkZ0pjy30k=%

Review text pages 183-187 for a discussion of structural unemployment, wage rigidity, and labor unions.
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