SQ5_LaborMarketsAK

W w 16 16 1600 l 800

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Unformatted text preview: . e. Is the market outcome after unionization efficient? Explain. Be as precise as possible. a. See below. For industry A plot WA=16- (1/50) LA. For industry A plot WB=16- (1/100) LB. b. The wage has to be equal in the two industries, otherwise workers will have an incentive to switch industries. So, in equilibrium, it must be the case that 16- (1/50)LA=16- (1/100)LB => 2LA=LB. In addition, given that there are 600 workers, we know that LA+LB=600. Substituting, we get that 2LA+LA=600 => LA=200. Thus, LB=400, and WA=WB=12. c. If WA=14, then LA=100 and LB=500. Employment in industry A will decrease by 100 and employment industry B will increase by...
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