Question

Assume that the labor market for barbers is competitive and that it is differentiated into two groups: barbers who are bald (or going bald) and those who have a full head of hair. Assume that the barbers in this market have identical hair-cutting ability, regardless of whether they are bald or not. Currently the equilibrium wage in the bald barber market is lower than that in the nonbald market. Further assume that the market for haircuts is competitive. Refer to Scenario 19-4. If consumers do not discriminate between bald barbers and barbers with hair, then a. wages in the market for barbers can never be in equilibrium. b. the equilibrium wage in the "bald" market will eventually fall. c. competitive pressure in the market for haircuts will eventually cause the equilibrium wage in both markets to be identical. d. the equilibrium wage in the "hairy" market will eventually rise.

Answer 1

Answer: The answer is b, the equilibrium wage in the bald market will eventually fall

Step-by-step explanation:

The competitive labour market is a kind of labour market in which there are many employers of labour in which a single employer of labour cannot influence the wage rate. In a competitive labour market the wage rate is determined through the interaction of the forces of demand and supply. Therefore a firm in a competitive labour market is a wage taker. In such a market if the demand for Labour is more than supply of labour then wage rate will rise,and if the supply of labour is more than demand for Labour wage rate will fall, if the demand for Labour is equal to the supply of labour that is the equilibrium then the wage rate will be favourable to both the employer and the employee.