Question

1. Several types of economic events can cause a shift in labor demand, so that a higher or lower quantity of labor is hired at every salary or wage. List and explain three of these events.

2. Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?

Answer 1

1. Events that can shift the labor demand-

a. Change in demand for the output- It is also known as derived demand. When the demand for the goods that the labor produces rises, there is also a rise in the demand for labor as more Labor is needed to make the product. The opposite is also true.

b. Change in productivity of labor- When the labor becomes more productive due to technology or education they are more cost efficient than capital, hence the demand for labor rises. Vice versa is also true.

c. Change in the number of firms in the industry- When number of firms rises, number of labors demanded also rises.

Answer 2. During shortage, demand is greater than supply of the good. This puts upward pressure on the price level as people are willing to pay more it for increased quantity. price rises till demand is equal to supply, hence market tends to equilibrium .

Durig surplus Quantity supplied is greater than quantity demanded so price is greater than equilibrium price. Surplus puts downward pressure on prices, price falls till the quantity which consumers demand is equal to the quantity ehich producers supply.