Demand and Supply Curves. Demand and supply condition in the market for unskille

Question

Demand and Supply Curves. Demand and supply condition in the market for unskilled labor are important concerns to business and government decision makers. Consider the case of a federally mandated minimum wage set above the equilibrium, or market clearing, wage level. Some of the following factors have the potential to influence the demand or quantity demanded of unskilled labor. Influences on the supply or quantity supplied may also result. Holding all else equal, describe these influences as increasing or decreasing, and indicate direction of the resulting movement along or shift in the relevant curve(s)

A. An increase in the quality of secondary education

B. A rise in welfare benefits

C. An increase in the popularity of self-service gas stations, car washes, and so on

D. A fall in interest rates

E. An increase in the minimum wage

Explanation / Answer

A. This would improve the skills of workers and hence, reduce the quantity supplied of skilled workers. This would lead tto an upward shift in the supply curve.

b. A rise in welfare benefits would increase the supply of labour, thereby shifting the supply curve downwards.

c. An increase in the popularity of self-service gas stations, car washes, and so on, will reduce the quantity demanded of labour and shift the demand curve towards left.

d.  A fall in interest rates, would reduce the incentive to save thereby reducing the incentive to work. Hence, this would shift the quantity of labour supplied to the left

e. An increase in the minimum wage will increase the quantity supplied of the labour, this would lead to a rightwards shift in the supply curve.

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