Show the criteria used in making his decision

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Reference no: EM13154146

Consider the following variation of the basic Harris-Todaro Model. Assume that the going wage in agriculture is normalized at 1. The wage in the formal urban sector is 3. The wage in the informal sector is 0.5. Additionally, 20% of working adults who live in the city are employed in the formal sector. Also, assume that the discount rate is 10% and that the lifetime of an individual is only 2 periods. Consider the following situations:

Assume that in order to move to the city the individual would have to purchase a bus ticker worth 0.1.

What is the expected return of remaining in the countryside? Show your work.

What is the expected return of migrating to the city? Show your work.

Determine whether the individual should migrate to the city or not. Show the criteria used in making his decision.

Is the model in equilibrium? Why?

Reference no: EM13154146

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