Chapter 12, Problem 24AA

To determine

To evaluate: The affect of supply and demand in the labor market with example.

Explanation of Solution

Much as supply and demand rules influence the rates consumers pay for goods and services, so does the labor market. The labor market encompasses the interaction between workers and companies on the economy, rather than interacting specifically with consumer products. Organizations are the consumers in nature, and people provide the labor or supply. But all operate as wage-takers; companies have to take and pay the prices demanded by the market and employees have to accept those wages for the jobs done.

Many different factors will influence labor demand and labor supply, affecting wages, rates of employment and, thus, equilibrium. Changes in demand for labor from companies, for example, may result from market demand for goods or a shift in government regulations impacting labor costs. Changes in labor supply may result from the population, such as growth that increases the size of the labor force or a shift in workers' age composition, such as more elderly workers or younger employees. Labor supply can also change because of employee preferences and labor market attitudes.

Example:

Of those employers who want to hire nurses, the demand curve (D) intersects with the supply curve (S) of those who are eligible and able to serve as nurses at the equilibrium point (E). The average pay is $70,000, and the excess amount is 34,000 nurses. With an above-equilibrium wage of $75,000, the quantity given increases to 38,000, but the quantity of nurses requested reductions to 33,000 at the higher pay. There will be an oversupply or surplus of nurses at this above-equilibrium wage. With a $60,000 under-equilibrium pay, the quantity delivered falls to 27,000 while the quantity demanded rises to 40,000 nurses at the lower wage.

Economics Concept Introduction

Introduction: The labor market, relates to labor supply and demand, in which supply is generated by the workers and demand is given by the employers. It is a major component of every economy, and is closely correlated with money, commodities, and services markets.