Consider a situation in which there are just two countries: an Origin, and a Destination country.

Labor demand in the origin country is given by:

wo=12-Lo

Labor demand in the destination country is given by:

wd=16-Ld.

where Loand Ldindicate the number of workers in the origin and destination countries, respectively.

Initially, there are 7 workers in the origin country and 5 workers in the destination country. Assume that labor supply is perfectly inelastic in both countries (that is, that labor supply can be represented through a vertical line).

Consider first the case in which individuals are not able to change their country of residence.

1)What would be the equilibrium wage in thedestinationcountry?

2)What would be the equilibrium wage in theorigincountry?

Consider now the case in which workers can freely migrate across countries (at no cost).

3)What would be the equilibrium wage in thedestinationcountry?

4)What would be the equilibrium wage in theorigincountry?

5)How many workers (if any) would migrate from the origin to the destination country?

6)Suppose that the government of the destination country is considering to introduce animmigration taxof $2, which workers would have to pay in order to move from the origin to the destination country.

What would be the equilibrium wage in thedestinationcountry?

7)What would be the equilibrium wage in theorigincountry?

8)How many workers (if any) would migrate from the origin to the destination country?

9)How much tax revenue would the government of the destination country collect?