There are two labor markets that are closed to oue another, then open their bord
ID: 1216639 • Letter: T
Question
There are two labor markets that are closed to oue another, then open their borders completely. The markets are domestic(d) and foreign(f). Calculate consumer and producer surplus for each market separately when they are closed. Domestic: - 50 is the perfectly inelastic supply of labor in the domestic market, L^D_d = 100 - w is the demand of labor in the domestic market. Foreign: L^S_f = 100 is the perfectly inelfwtic supply of labor in the foreign market. L^D_f =120 - w is the demand of labor in the foreign market. The borders are of and the workers move from the low wage market to the high wage market, until the markets equilibria. What wage do they settle at? Calculate the change iu surplus to both markets. Is there a net benefit or coat to the system due to equilibration? Drawing it may be useful.Explanation / Answer
a.
Domestic market:
Equilibrium level: LD (d) = LS (d)
100 – w = 50
w = 50
Equilibrium number of labors (w) is 50 and rate (r) is 50.
Regarding the consumer surplus:
w
50
0
r
50
100
Consumer surplus in domestic market = ½ × Base × Height
= ½ × 50 × (100 – 50)
= 1,250 (Answer)
Since the supply is perfectly inelastic there would be no triangle. Therefore, the producer surplus is 0 (Answer)
Foreign market:
Equilibrium level: LD (f) = LS (f)
120 – w = 100
w = 20
Equilibrium number of labors (w) is 20 and rate (r) is 100.
Regarding the consumer surplus:
w
20
0
r
100
120
Consumer surplus in domestic market = ½ × Base × Height
= ½ × 20 × (120 – 100)
= 200 (Answer)
Since the supply is perfectly inelastic there would be no triangle. Therefore, the producer surplus is 0 (Answer)
w
50
0
r
50
100