Question

Given a typical upward slopping labor supply curve, and a downward slopping labor demand curve in a particular labor market of insurance agents. How would the equilibrium wage change if the insurance company is facing an increase in the demand of insurance.

Answer 1

The equilibrium wages will rise in the market for insurance agents.

The equilibrium wages occur when the demand for insurance agents intersects the supply fo insurance agents. Now if the demand for insurance has increased, it will lead to an increase in the demand for insurance agents. Thus, the demand curve shifts tot he right. At the existing wage, there is excess demand. Thus, the wages will rise which will lead to an increase in quantity supplied and a decrease in quantity demanded. This continues until the entire excess demand is wiped out through an increase in wages.