Imagine a small city Chambana with a labor demand function E=200-1/2w and a labor supply function E=2w-100. Assume that there is a sudden influx of 40 perfect substitutes immigrants.
a. How does this affect the natives in the labor market? (calculate wage and employment change for native workers)
b. In order to measure the impact of immigrants on the native labor market with real world data, one economist compares the change in wage in Chambana before and after the influx of immigrants to change in wage in Peoria. Is this a good method of measuring the impact? Why or why not?
c. Explain why in the long run, the natives might not be affected as much.