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. Now suppose that there is a minimum wage in market 1 equal to $80, and that market 2 is again perfectly competitive. If 50 workers choose to work in market 2, and 50 choose to search for work in market 1, then the wage rate in market 2 will be $50, and the expected wage rate in market 1 will be:

Question

Quizplus · Accepted Answer

The expected wage rate in market 1 is the probability of getting a job times the wage rate if you get a job, plus the probability of not getting a job times the wage rate if you don't get a job. The probability of getting a job is 50/100 = 1/2. The wage rate if you get a job is $80. The probability of not getting a job is 1/2. The wage rate if you don't get a job is $0. Therefore, the expected wage rate in market 1 is (1/2) * $80 + (1/2) * $0 = $40.

In Market 1, the Demand for Labour Is W1 =

In Market 1, the Demand for Labour Is W₁=