1. Suppose that, for example in India, a minimum wage is instituted in the modern sector above the market clearing wage, while the rural traditional wage is market determined at a lower level than in the modern sector
(a) Describe the impact of this policy on the rural labor force, urban unemployment, and the rural wage.
(b)Will the modern sector wage be equal to the traditional sector wage after markets equilibrate through migration? Explain.
(c) What effect might moving costs have on the equilibrium you described in part (b)?
(d) What effect might the introduction of factories to rural areas have on the equilibrium you described in part (b)?
2. The dominant contractual arrangement in Bangladesh is sharecropping. Some scholars argue that sharecroppers may be in a better position to adopt a profitable but risky new technology compared to independent producers of equal wealth since sharecropping reduces risk.
a) Explain the role of risk and uncertainty in (i) the analysis of the economic behavior of peasant farmers (ii) overcoming the Marshallian inefficiency
b) What would be the predicted impact on the optimal share in a sharecropping contract of improved access to credit and insurance markets?
Make sure to include graphs in your answers