Microeconomics - The determination of relative wage rates and levels of employment in perfectly competitive labour markets

Question 1

Draw a labour market diagram

Answer 1

The labour market is a factor market. The supply of labour is determined by those
who want to be employed (the employees), whilst the demand for labour is from
employers.

Labour market equilibrium is determined where the supply of labour and the
demand for labour meet. This determines the equilibrium price of labour, i.e. the
wage rate.

x axis - qty of laboir

y axis - wage rate

Question 2

What happens to the demand curve when demand for labour falls by e.g. during a recession

Answer 2

shifts left

Question 3

what would happen in the diagram if the supply of labour increases e.g. retirement age raise

Answer 3

the wage rate will fall as supply curve shifts right