Question

Which of the following statements is true?

1) If the supply of labor exceeds the demand for labor, wage rates tend to rise.
2) There is no voluntary unemployment at the equiLiBrium wage rate.
3) Lack of information relating to the job market can lead to unemployment.
4) If the demand for labor exceeds the supply of labor, wage rates tend to fall.

Answer 1

The correct statement is that lack of information relating to the job market can lead to unemployment. Other options are incorrect, as typically wage rates fall when labor supply exceeds demand and rise when labor demand exceeds supply. Voluntary unemployment can exist even at the equilibrium wage.

Step-by-step explanation:

The question relates to the dynamics of the labor market, specifically the relationship between labor supply, labor demand, and wage rates. Out of the given statements, the correct one is: Lack of information relating to the job market can lead to unemployment. Now let's address each statement and why statement 3 is correct. If the supply of labor exceeds the demand for labor, wage rates tend to fall, not rise, as there is more labor available than jobs. This can increase unemployment. There could still be voluntary unemployment at the equilibrium wage rate, as some people may not want to work at that wage or may be between jobs. Lack of information relating to the job market can indeed lead to unemployment. This is called informational unemployment and occurs when workers do not have complete information about available jobs that match their skills. If the demand for labor exceeds the supply of labor, wage rates tend to rise to attract more workers, not fall. Considering the supply-and-demand model of competitive labor markets, the market aims to reach equilibrium where supply equals demand, and the wage rates adjust accordingly. Based on the information provided, with an inflow of women into the labor market, the supply of labor shifts to the right, causing unemployment to rise because of the sticky wages, but over time, increased labor demand may reduce unemployment and raise wages.

Answer 2

The statement regarding if the demand for labor exceeds the supply, wages would fall, is false. In economics, excess demand for labor leads to higher wages due to the laws of supply and demand. Equilibrium wages are determined where labor supply and demand intersect.

Step-by-step explanation:

The statement 'If the demand for labor exceeds the supply of labor, wage rates tend to fall' is false. According to basic principles of economics, when demand for labor exceeds the supply of labor, there is upward pressure on wages, leading to an increase in wage rates, not a decrease. This concept is grounded in the laws of supply and demand, which apply to labor markets similarly to goods markets. When employers demand more labor than is available in the market (excess demand), they may bid up wages to attract the necessary employees, resulting in higher wage rates.

Conversely, reference to the influx of women into the labor market causing an increase in the labor supply suggests wage stickiness may prevent immediate wage increases. However, this primarily affects unemployment rates rather than driving wages down. In the long term, as labor demand grows, unemployment is expected to decline and wages could eventually increase again.

Equilibrium in the labor market is reached where the supply and demand curves intersect, determining the wage rate at which the quantity of labor supplied is equal to the quantity of labor demanded.