Principles of Microeconomics / Unit 13 MIC 1215 worked example, 60 to 90 seconds
Predicting Wage and Employment from a Shift
The idea
Given an event in a competitive labor market, decide first whether it changes what workers are worth to firms, a demand shift, or how many are willing to work at each wage, a supply shift. Then apply the four cases: demand up raises both wage and employment; demand down lowers both; supply up lowers the wage and raises employment; supply down raises the wage and lowers employment. State which curve moved, which way, and the two results.
In practice
Worked example, four events in the market for construction workers. New residents raise the demand for houses: the product price rises, marginal revenue product rises, labor demand shifts right; wage and employment both rise. More women choose construction work: supply shifts right; wage falls, employment rises. Better training raises each worker's marginal product: demand shifts right; both rise. Factory-built framing substitutes for site labor: demand shifts left; wage and employment both fall.
Where people slip
Ask whether the event changes marginal product or product price, which is demand, or the number willing to work, which is supply; an event that does both needs both curves. And a wage change caused by one of these is a result, never the cause of a shift.
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