Question

5. Given a typical upward slopping labor supply curve in a particular labor market of insurance agents. How would the supply curve change if: Insurance company is facing an increase in the demand of insurance. 6. 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. 2 7. 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 unemployment change if the insurance company is facing an increase in the demand of insurance.

Answer 1

5. When an insurance company is facing an increase in the demand of its insurance, the demand curve will shift rightwards, the price level of the insurances will also increase to offset the increase in demand. As a result of this increase in price the supply will increase and shift the supply curve to the right, increasing the quantity supplied and lowering the prices than before.

Therefore, the new supply curve will be SS₂ and the equilibrium level be at point 3 with prices set at P₃.