Question

Economists argued that temporary labor wage differentials tend to be eroded by labor mobility. Consider the two markets for sheet-iron workers and steel-pipe workers in the same region. Suppose both markets are competitive. We begin in a situation in which both sheet-iron workers and steel-pipe workers earn $20 per hour. Assume that workers can switch easily between the two jobs.

a.       Draw diagrams showing the supply and demand for labor in each market.
b. Now suppose there is a sharp increase in the demand for steel pipe. Explain what happens in the market for steel-pipe workers.

c. If the employment of steel-pipe workers increased in part (b), explain where the extra workers came from.

d. What effect does the event in part (b) have on the market for sheet-iron workers?

e. What is the long-run effect of the shock on the relative wages in the two types of jobs?​

Answer 1

Answer:

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