Supply and Demand


Welcome to class! 

In today’s class, we will be talking about supply and demand. Enjoy the class!

Supply and Demand

Supply and demand |

Explaining supply and demand for labour

Demand for labour is a concept that describes the amount of labour that an economy or specifically a company is willing and ready to hire at a given point in time. Note that this demand may not necessarily be in long-term and is typically determined by the real wage companies are capable and willing to pay for the labour and the value such labour will bring to the company. Demand for labour increases market wages and enables more workers to enter the labour market. But the inevitable costs that come with hiring more labour may cause employers to use less labour.

Wage determination

A wage determination is the listing of wage rates and fringe benefits which labourers are entitled. These rates are set by employers, and in most cases apply across the board (specifically within sectors) such that labour forces working in certain fields are sure to receive a certain level of remuneration; irrespective of the different companies they work for. Meanwhile, the competition also helps to set wage determination. A perfectly competitive labour market will have the following features

  • Many firms
  • Perfect information about wages and job conditions
  • Firms are offering identical jobs
  • Many workers with the same skills

Diagram of wage determination

  1. The equilibrium wage rate in the industry is set by the meeting point of the industry supply and industry demand curves.
  2. In a competitive market firms are wage takers because if they set lower wages, workers would not accept the wage.
  3. Therefore they have to set the equilibrium wage We.
  4. Because firms are wages takers the supply curve of labour is perfectly elastic therefore AC = MC
  5. The firm will maximize profits by employing at Q1 where MRP of Labour = MC of Labour

Meaning and types of unemployment 

Unemployment is defined as a situation where someone within the working-age bracket, healthy and able-bodied is not able to work; either out of choice or because they are unable to be in full-time employment. It is important to note however those mothers who leave work to raise children and people taking time to acquire higher education are not necessarily classified as unemployment. This is because in the meantime they are raising kids and acquiring education, they are not concurrently seeking employment because of course, they are busy. One grey area, however, is voluntary unemployment. This occurs when the unemployed choose not to take a job at the going wage rate (e.g. the wrong job, benefits too high etc.) They could be counted as unemployed because they are still seeking a job (they just don’t want to take one they are offered.

Types of unemployment
  1. Cyclical Unemployment.
  2. Frictional Unemployment.
  3. Structural Unemployment.
A graph measuring unemployment


In our next class, we will be talking about Market Strategy.  We hope you enjoyed the class.

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