In the diagram below shows the case of a relatively poor country (such as Mexico
ID: 1155642 • Letter: I
Question
In the diagram below shows the case of a relatively poor country (such as Mexico). L*L workers emigrate from this country to another country seeking higher wages. As workers move to another country, labor supply in the poor country goes down from L to L*
Select one:
a. In the low income country, national income goes down by area (c + e)
b. In the high income country, national income goes up by area (c+e)
c. The capitalists in the low income country lose area (b+c).
d. None of the above.
Wage LaborExplanation / Answer
The area under the labor supply curve and above the wage rate constitutes the Capitalists' Surplus.
Therefore, pre - migration, apitalists' surplus = a + b + c (in the low income country)
Post migration, Capitalists' Surplus = a only.
This is because the wages have increased. Therefore, the capitalists surplus has decreased by an area equal to (b+c).
Thus, the correct answer is option c. The capitalists in the low income country lose area (b+c).