In the two-sector model of an economy (described under the heading “Misallocation of Factors Among Sectors” in Section 10.3), use a diagram like Figure 10.3 to show how a minimum wage in the urban sector would lead to an inefficient allocation of labor.

 

Transcribed Image Text:

Units of output Marginal product of labor in Sector 1 Marginal product of labor in Sector 2 Labor allocated to Sector 2 Labor allocated to Sector 1 Units of output Marginal product of labor in Sector 1 Marginal product of labor in Sector 2 Labor allocated to Sector 2 Labor allocated to Sector 1