The equations below represent the inverse demand and supply curves for construction workers in Small City. Quantities are given in thousands of hours. pD= 75 − 2q, ps= 0.5q The price and quantity of equilibrium in this market are p*= 15 and q*= 30. The city decides to establish a minimum wage (in effect, a price floor) equal to pf= 18. a. Do a welfare analysis comparing the equilibrium before and after the price floor. b. A neighboring city, called Big City, is going through a housing boom and has a high demand for construction workers. Big City is willing to hire as many hours of construction work as Small City can provide for a wage equal to Small City’s minimum wage (pf= 18). How does the hiring of Small City hourly construction workers by Big City developers affects total welfare in Small City? c. Assume that the minimum wage was removed from Small City, but Big City is still hiring all construction workers willing to work for $18/hour. Social norm dictates that construction workers hired in Big City send some money back to their families in Small City. For each hour worked, they send back $1 in “remittances.” How do these remittances, a de facto tax on exports, affect the equilibrium and total welfare? Specifically, by how much does ?? increase in Small City relative to the non-remittances case? And how much money is sent as remittances to the workers’ families in Small City?
The equations below represent the inverse demand and supply
in Small City. Quantities are given in thousands of hours.
pD= 75 − 2q, ps= 0.5q
The price and quantity of equilibrium in this market are p*= 15 and q*= 30. The city decides
to establish a minimum wage (in effect, a
a. Do a welfare analysis comparing the equilibrium before and after the price floor.
b. A neighboring city, called Big City, is going through a housing boom and has a high demand for
construction workers. Big City is willing to hire as many hours of construction work as Small City
can provide for a wage equal to Small City’s minimum wage (pf= 18). How does the hiring of
Small City hourly construction workers by Big City developers affects total welfare in Small City?
c. Assume that the minimum wage was removed from Small City, but Big City is still hiring all
construction workers willing to work for $18/hour. Social norm dictates that construction
workers hired in Big City send some money back to their families in Small City. For each hour
worked, they send back $1 in “remittances.” How do these remittances, a de facto tax on exports,
affect the equilibrium and total welfare? Specifically, by how much does ?? increase in Small City
relative to the non-remittances case? And how much money is sent as remittances to the
workers’ families in Small City?
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