Question

How do labor markets differ from the standard supply and demand curve and why?

Answer 1

The standard market of goods have demand and supply similarly in the market of labor there are demand and supply curves based on the assumption that labor is homogeneous. The demand for labor is determined by the employer in terms when wages increase then employer demands less labor because cost of production will increase similarly supply of labor increases as wages induce labor to supply more.

The employer cease to employ more labor at the point where value of marginal productivity of labor equals marginal cost of labor. However, this market is different from general goods market because labor demand and supply is affected by social , political and institutional factors. The exceptional case of backward sloping supply of labor is unlike standard supply curve as there is a tradeoff between work and leisure for the worker.