Question

Name or describe 3 ways that the supply and demand graphs for labor is similar to the supply and demand graphs for a product. Then name or describe 3 significant ways they are different.

Answer 1

Three ways in which Supply and demand graphs for Labour is similar to supply and demand curve for a product

1) Market demand curves are negatively slopped

In the case of both product and labour Market demand curve is negatively slopped. Demand for labour decreases with increase in wage rate and quantity demanded of a product decreases with Increase in Price.

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2) Market Supply curves are positively slopped.

Market Supply curve for a product is positively slopped due to the direct relationship between that exist between quantity supplied and price. Market supply curve of labour is also positively slopped.

3) Market Equlibrium is determined by the intersection of demand curve and Supply curve.

Its the intersection of demand curve and Supply curve of product which determines the equilibrium quantity and price of the product. Similarly intersection of demand for Labour and Supply of labour determines the equilibrium wage rate and the quantity of labour that will be employed at that wage rate.

* Three ways in which they are different.

1) Meaning of the demand curve.

Demand curve for labour represents marginal revenue product of labour.ln the case of a product, demand curve is the same as marginal benefit curve because our willingness to pay for the next unit of a good is equal to the marginal benefit you expect to receive from the use of next unit of good.

2) Nature of demand.

Demand curve for product represents direct demand. On the other hand, demand for Labour is derived from the demand for product. Therefore, Labour demand curve represents derived demand . Individual labour supply decreases after a certain higher wage.

3) Shape of individual Supply curve.

For a product, individual supply curve as well as market Supply curve is an upward sloping curve. As a far as labour is concern, market demand curve for labour slopes upward. But individual labour supply curve is a backward bending curve which implies the decrease in individual Labour Supply after a certain higher wage.