A. In the Todaro model of migration, suppose there are 1 million people living i

ID: 1181261 • Letter: A

Question

A. In the Todaro model of migration, suppose there are 1 million people living in a

city of which 400,000 are unemployed. Let wu (urban modern sector wage) = 8 wr

(rural sector wage) = 2. Show that despite such a large unemployment migration

continues and find the equilibrium rate of urban unemployment and the equilibrium

number of unemployed at which migration would stop. Show your steps.

B. After the equilibrium is reached, suppose 100,000 new jobs are created, causing

200,000 new migrants to enter the city. Does the equilibrium rate change? What is

the new rate of urban unemployment right after the new migrants have arrived, but

before it reaches the equilibrium rate.

1. wr=2

l_e=600000 (employed people)

l_us=1000000 (employed + unemployed)

wu=8

wu*l_e/l_us=8*600000/1000000=4.8

wu*l_e/l_us>wr

Therefore, Rural to Urban migration continues

At equilibrium,

wu*l_e/l_us=wr

le=2*1000000/8=250000

Therefore when employed population reaches 250000 migration stops

Equilibrium rate of unemployment=(1000000-250000)/1000000=0.75

2. wl*l_e/l_us=8*700000/1200000=4.67

yes, the equilbrium rate changes

rate of unemployment=(1200000-700000)/1200000=0.4167

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.