Economics – Microeconomic decision-makers - Workers | e-Consult
Microeconomic decision-makers - Workers (1 questions)
Answer: The wages in a particular occupation are determined by the forces of supply and demand. The demand for labour represents the quantity of workers employers are willing and able to hire at a given wage rate. The supply of labour represents the quantity of workers willing and able to offer their services at a given wage rate. The equilibrium wage is the point where the supply and demand curves intersect.
Diagram:
| Cell | Description |
| Demand Curve (D) | Shows the inverse relationship between the wage rate and the quantity of labour demanded. As the wage rate increases, the quantity of labour demanded decreases. |
| Supply Curve (S) | Shows the direct relationship between the wage rate and the quantity of labour supplied. As the wage rate increases, the quantity of labour supplied increases. |
| Equilibrium Wage (E) | The point where the supply and demand curves intersect. This determines the equilibrium wage rate and the quantity of labour employed. |
How Demand and Supply Affect Wages:
- Increase in Demand: If the demand for labour in a particular occupation increases (e.g., due to increased economic activity or a shortage of skilled workers), the demand curve shifts to the right. This leads to a higher equilibrium wage and a greater quantity of labour employed.
- Decrease in Demand: Conversely, if the demand for labour decreases (e.g., due to a recession or technological advancements), the demand curve shifts to the left. This results in a lower equilibrium wage and a smaller quantity of labour employed.
- Increase in Supply: If the supply of labour increases (e.g., due to a larger pool of qualified workers entering the job market), the supply curve shifts to the right. This leads to a lower equilibrium wage and a greater quantity of labour employed.
- Decrease in Supply: If the supply of labour decreases (e.g., due to fewer people seeking employment), the supply curve shifts to the left. This results in a higher equilibrium wage and a smaller quantity of labour employed.
The elasticity of supply and demand also plays a role. If demand is relatively inelastic (meaning it is not very responsive to changes in wage), a significant change in wage can lead to a large change in the quantity of labour employed. If supply is relatively inelastic, a change in wage will have a smaller impact on the quantity of labour supplied.