Question

A If wages are below the equilibrium level, what would cause them to rise? B What...

A If wages are below the equilibrium level, what would cause them to rise?

B What can cause the labor supply curve to bend backward?

C What are the two shifters of labor demand? What are the four shifters of labor supply?

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Answer #1

A. The excess demand for labour will cause the wage level to rise.

B. At lower wage levels, income effect is smaller than substitution effect, rise in wage will lead to increase in labour supply.

At higher wage levels, income effect is greater than substitution effect, rise in wage will lead to fall in labour supply.

C. Shifters of labour demand
1. Price of the good
2. Level of capital

Shifters of labour supply
1. Change in migration
2. Change in wage in other occupations
3. Change in minimum qualifications
4. Change in population

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