Think of a financial capital market for a stock. News comes out that this compan

Question

Think of a financial capital market for a stock. News comes out that this company is going to lose money in the upcoming quarter. Which curve is affected and in what direction? What will happen to the equilibrium wage and quantity of labor? and then Think of a labor market for skilled workers. LCC starts a program called “Get a skill, get a job” which promises that at the end of training, you’ll get a job or your money back. Which curve is affected and in what direction? What will happen to the equilibrium wage and quantity of labor?

Explanation / Answer

a. When the news  comes out that this company is going to lose money in the upcoming quarter then the demand for the company's stock falls and demand curve shifts to the left. As we know, the demand for labor is derived demand. When the demand for stock falls, the company reduces its demand for laborers. The demand curve for the labor shifts to the left which reduces the equilibium quanity of labor falls and equilibrium wage also falls.

b. When LCC starts this program, more and more laborers would want to join this programme in the hope of getting a job, also there is no loss. Thus, the supply curve of labor shifts to the right. The equilibium quantity of labor rises and the equilibrium wage falls in the labor market.

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