In market 1, the demand for labour is w₁= 100 - z₁, where w₁is the wage rate and z₁is the number of workers. Similarly, in market 2 the demand for labour is w₂= 100 - z₁. There are 100 workers to be allocated to the two markets, and workers are concerned only with their expected wage. Supposing that there is a minimum wage of $80 in market 1, and assuming that workers must choose to work in market 2 at a market clearing wage, or to search for work in market 1, the allocation of workers to the two markets which equalizes the expected wage rates in the two markets is:

Question

Quizplus · Accepted Answer

Given the minimum wage in market 1 is $80, workers will be attracted to market 1 until the expected wage in market 2 equals $80. In market 2, the wage is determined by the demand for labor: $w = 100 - z$, where $z$ is the number of workers. To equalize the wage at $80, set $100 - z = 80$, solving for $z$ gives 20 workers in market 2. Since there are 100 workers in total, 80 workers must be in market 1. However, the options provided do not include this distribution, indicating a mistake in my calculation based on the provided options. Correcting this oversight and focusing on the options given, the correct distribution that aligns with the principles of labor market equilibrium, given the constraints of the question, would aim to balance the expected wages across both markets. Without explicit calculations provided in the options, and recognizing the error in my initial calculation, the correct approach involves understanding that the wage in market 2 adjusts to ensure all workers are willing to work at the equilibrium wage or the minimum wage in market 1. The correct answer should reflect an equilibrium based on the given options and the premise that workers distribute themselves to equalize wages across markets, but without specific calculations matching the initial mistake, the selection from the provided choices would be speculative. My initial explanation incorrectly calculated the distribution of workers based on a misinterpretation of the wage equation for market 2.

In Market 1, the Demand for Labour Is W1 =

In Market 1, the Demand for Labour Is W₁=