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Chapter 4: Q, 1 (page 103)

In the labour market, what causes a movement along the demand curve? What causes a shift in the demand curve?

Short Answer

Expert verified

Changes in the wage rate which determines the price of labor causes a movement along the demand curve.

Step by step solution

01

Step 1. Introduction

A structre or system where labor is traded or exchanged is referred to as labor market. Labor services are provided by workers in return for wages and is demanded by firms to produce goods and services.

02

Step 2. Explanation 

Changes in the wage rate, which determines the price of labor, making it cheaper or expensive, shall cause a movement along the demand curve. All other factors affect the demand for labor which can be- changes in output, changes in the production process to more or less labor intensive techniques, government intervention, etc causes a shift in the demand curve.

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Most popular questions from this chapter

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.

a. The price of oil rises.

b. New oil-drilling equipment is invented that is cheap and requires few workers to run.

c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.

d. Government imposes costly new regulations to make oil-drilling a safer job.

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor that the government can pursue if it wishes to encourage drilling for natural gas and for a new pipeline in Alaska.

Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?
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