Question

Considering the following labor markets. A slightly different feature of labor markets is that employees are the suppliers of labor and firms are the demanders of labor. Assuming an identical inward shift of the demand curve, which market will cause a higher level of unemployment due to the demand shift, as measured by the number of jobs lost due to the demand shift (not the absolute number of jobs)? Note: We are assuming we are in an industry with market power. While this is not necessarily the best assumption for a labor market, it is reasonable in the presence of a strong labor union.

Answer 1

i added the graph of both markets as an attachment

The answer is market B or 2. This market a higher level of unemployment.

When elasticity of supply increases, we have it that the suppliers would have greater market power.

In market B, we have it that the elasticity of supply is bigger than that if A. This means that the supplier has more market power in this market than in market A.

Since the elasticity us greater in this market, then we would have change in unemployment due to a fall in demand to be more here than in A.