Development economics questionWatch
Question: Suppose that X is the wage ceiling and the rural wage is not allowed to rise above X. The wage in the urban sector is flexible and is allowed to move freely. Labor is allowed to move freely between the urban and rural sectors.
At equilibrium, what is the
(a) wage in the rural sector (X)
(b) amount of labor employed in the rural sector (C)
(c) wage in the urban sector (X)
(d) amount of labor employed in the urban sector (A+B)
I am pretty confused as to how the amount of labor employed in the rural and urban sector is determined from this graph, and would appreciate any help at all! Thank you so much :-)
In rural sector the wage can’t be above X so at price X when it crosses demand curve (rural) the quantity demanded for labor will be B+C.
That leaves the quantity demanded in urban sector = A and that corresponds to the wage of Z on demand curve (urban)