Question 8 Matching Market Clearing Let the aggregate matching function m(s, v) be given by the Cobb Douglas function m(s, v) s v 1 where parameter belongs to (0, 1) All variables are defined in the previous two questions Also let v s measure the degree of labour market tightness or congestions effects Show how probability p and q depend on Provide a brief economic interpretation Draw the matching market clearing diagram in which labour market tightness equates LFP (or labour supply) with new job creation ( labour demand ) Using the perfect competitive labour supply labour demand diagram describe briefly and qualitatively how real wages are determined in the matching framework (Note this entire question has nothing to do with labour supply, but nonetheless it is possible to think in terms of this framework)

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Question: Question 8: Matching-Market Clearing . Let the aggregate matching function m(s, v) be given by the Cobb-Douglas function: m(s, v) = s v 1- where

Question 8: Matching-Market Clearing. Let the aggregate matching function m(s, v) be given by the Cobb-Douglas function: m(s, v) = sv^1- where parameter belongs to (0, 1). All variables are defined in the previous two questions. Also let = v/s measure the degree of labour-market tightness or congestions effects.

Show how probability p and q depend on . Provide a brief economic interpretation.
Draw the matching-market clearing diagram in which labour-market tightness equates LFP (or labour supply) with new job creation ("labour demand")
Using the "perfect competitive" labour supply/labour demand diagram describe briefly and qualitatively "how" real wages are determined in the matching framework. (Note: this entire question has nothing to do with labour supply, but nonetheless it is possible to think in terms of this framework).

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