Perfectly competitive labour Market assumptions and diagram

Question 1

What are perfectly competitive labour markets

Answer 1

Everybody in every job should get paid the same

Question 2

Assumptions

Answer 2

• All workers are perfectly mobile ( Geographical and Occupational)
• All workers/firms have perfect knowledge – if w/r rise in one area, everybody instantly knows
• No barriers to entry/exit – All workers have the necessary skills/qualifications to do the job
• Homogeneous workers - all workers have the same MRP
• No market power – Firms and workers are wage takers

Question 3

Draw diagram on sheet and explain

Answer 3

If there is an increase in demand for workers in this industry this causes more workers to be hired Q1-Q2 and the w/r will rise (w/r1-w/r2). Each form will now hire less workers (Q3-Q4) but there will be more firms in the market. As the w/r has risen there are no barriers to entry, workers have perfect knowledge, perfectly mobile and workers are homogeneous, they can move into this industry.

The increase in SoL pulls the w/r back down do its original level