Chapter 4: Supply and Demand in Labor Market

The Market System as an Efficient Mechanism for Information

Households and businesses:

Households are demand suppliers; labor prices and wages, businesses are producers

Financial market and interest rates

borrowing money are demands; suppliers are banks to lend out, assume interest rates

Who are the demanders and suppliers in labor markets?

Job seekers = suppliers of labor
Firms and other employers = demanders for labor

Who are the demanders and suppliers in financial markets?

Savers (individual or firm) = suppliers of money
Borrowers (person, firm, government) = demanders of money

Demand at Labor Markets

A higher salary or wage (higher price in the labor market) leads to a decrease in the quantity of labor demanded by employers
A lower salary or wage (lower price) leads to an increase in the quantity of labor demanded

Supply at Work in Labor Markets

A higher price for labor leads to a higher quantity of labor supplied
A lower price for labor leads to a lower quantity supplied

Equilibrium at Work in Labor Markets

Equilibrium - where the quantity supplied and the quantity demanded are equal

Excess (many applicants for each job opening) -> incentive for employers to offer lower wages

supply

_______ (more openings than applicants) -> higher pay to attract applicants

Shortage

__________ for labor is based on the demand for the good or service that is being produced. Example: the more automobiles consumers demand, the greater the number of workers automakers will need to hire

Derived demand

As demand for the goods and services increases, the demand for labor will increase -> shift to the ____

right

As demand for the goods and services decreases, the demand for labor will decrease -> shift to the ___

left

______ a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate

Minimum wage

_________ higher minimum wage to ensure a reasonable standard of living

Living wage

Those who supply financial capital through saving expect to receive a rate of return
Those who demand financial capital by receiving funds expect to pay a rate of return

Interest rate = example of a rate of return

Shifts Supply in Financial Markets

How much to save
How to divide up their savings among different forms of financial investments

Intertemporal _____________ involves decisions across time (i.e. when to consume goods – now or in the future?) Factors to consider: rate of return versus risk

decision making

_______ laws laws that impose an upper limit on the interest rate that lenders can charge

Usury laws

____ million Americans own credit cards; their interest payments and fees total tens of billions of dollars each year

200

________ pressure to set limits on the interest rates or fees that credit

Political

In many cases, these upper limit are ____the market interest rate - > nonbinding and non-issue unless equilibrium price increases enough to exceed the price ceiling

ABOVE