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Chapter 4: Q.4 (page 103)

In the financial 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 (labor's price) create a shift in the demand curve. A shift in the demand curve is caused by any change that impacts labor demand (e.g., changes in output, changes in the manufacturing process that utilize more or less labor, government regulation).

Step by step solution

01

Definition

Wage:

The amount of money paid to an individual for providing labor services to a company or an individual employer is referred to as wage. The amount of money given to an individual is determined by the amount of time it takes to complete the task and the abilities required to complete it.

02

Explanation

Interest rate changes (i.e., the price of financial capital) cause the demand curve to fluctuate. A change in any other (non-price variable) that influences demand for financial capital (e.g., changes in future confidence, changes in borrowing needs) would cause the demand curve to shift.

03

Step 3:Conclusion

Therefore, if the wage rate rises, the quantity of labor demanded falls in quality as employers seek out preferred employees, resulting in a movement upward along the demand curve.

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Most popular questions from this chapter

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.

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

b. Firms in the goods market

c. Firms in the financial market

d. Households in the goods market

e. Firms in the labor market

f. Households in the financial market

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.

In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve.

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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