Wage Determination In Perfect Markets:
Economics notes
Wage Determination In Perfect Markets:
➡️ Changes in the Price of Labour: An increase in the price of labour will cause a shift in the supply curve of labour to the right, while a decrease in the price of labour will cause a shift in the supply curve of labour to the left.
➡️ Changes in the Cost of Production: An increase in the cost of production will cause a shift in the supply curve of labour to the left, while a decrease in the cost of production will cause a shift in the supply curve of labour to the right.
➡️ Changes in the Number of Workers: An increase in the number of workers will cause a movement along the supply curve of labour to the right, while a decrease in the number of workers will cause a movement along the supply curve of labour to the left.
What is the role of supply and demand in wage determination in perfect markets?
In perfect markets, wages are determined by the intersection of the supply and demand curves for labor. The supply curve represents the willingness of workers to work at different wage levels, while the demand curve represents the willingness of employers to hire workers at different wage levels. The equilibrium wage is the wage level at which the quantity of labor supplied equals the quantity of labor demanded.
How do changes in labor productivity affect wages in perfect markets?
In perfect markets, changes in labor productivity can affect wages in two ways. First, an increase in labor productivity can increase the demand for labor, leading to an increase in wages. Second, an increase in labor productivity can also increase the supply of goods and services, leading to a decrease in prices. This can lead to an increase in real wages, even if nominal wages remain the same.
What are the limitations of perfect markets in wage determination?
While perfect markets provide a useful framework for understanding wage determination, they have several limitations. First, perfect markets assume that all workers and employers have perfect information about wages and working conditions, which is not always the case in the real world. Second, perfect markets assume that there are no barriers to entry or exit for workers or employers, which is also not always the case. Finally, perfect markets assume that all workers and employers are price takers, meaning that they have no market power to influence wages. In reality, some workers and employers may have market power, which can affect wage determination.