Q. 20 Whether the product market or th... [FREE SOLUTION]

Chapter 4: Q. 20 (page 105)

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.

Short Answer

Expert verified

Change in demand leads to movement of price and quantity in same direction. While change in supply results in movement of price in opposite direction.

Step by step solution

Step 1. Introduction

The market structure where exchange of goods and services takes palce is known as labor market. The market structure where the exchnage of labor services takes place is known as labor market.

Step 2. Increase in Demand

The increase in demand for good results in moving to the right of the demand curve, indicating an increase in both the equilibrium volume and the equilibrium price.

The increase in demand for labor causes the demand curve to rightly change, which means that both the equilibrium volume and the equilibrium wage increase.

Step 4. Decrease in Demand

The decrease in demand for good results in moving to the left of the demand curve, indicating an decrease in both the equilibrium volume and the equilibrium price.

The decrease in demand for labor results in moving to the right of the demand curve, indicating an decrease in both the equilibrium volume and the equilibrium wages.

Step 4. Increase in Supply

The increase in supply for good results in moving to the out of the supply curve, indicating an increase in the equilibrium volume and decrease in equilibrium price.

The increase in supply for labor results in moving to the out of the supply curve, indicating an increase in number of workers hired and decrease in equilibrium wages.

Step 5. Decrease in Supply

The decrease in supply for good results in moving to the inside of the supply curve, indicating an decrease in the equilibrium volume and increase in equilibrium price.

The decrease in supply for labor results in moving to the inside of the supply curve, indicating an decrease in the number of workers and increase in equilibrium wages.