The labour market in the diagram below begins in equilibrium with a real wage of $10 and quantity employed of 1000.
FIGURE 30-1
-Refer to Figure 30-1.Given the labour supply and labour demand curves,D0 and S0,which of the following statements is true in the market-clearing theory of unemployment?

Question

The labour market in the diagram below begins in equilibrium with a real wage of $10 and quantity employed of 1000.
  FIGURE 30-1
-Refer to Figure 30-1.Given the labour supply and labour demand curves,D0 and S0,which of the following statements is true in the market-clearing theory of unemployment?

Quizplus · Accepted Answer

In the market-clearing theory of unemployment, the labor market will adjust to equilibrium, where the quantity of labor supplied equals the quantity of labor demanded. In this case, there is an equilibrium at a real wage of $10 and a quantity employed of 1000. Any wage above $10 would result in an excess supply of labor, as more people would be willing to work at a higher wage than firms are willing to hire. This excess supply of labor would drive the wage down to the equilibrium level. Therefore, option B is correct as any wage above $10 will result in an excess supply of labor and the wage will be driven down.

The Labour Market in the Diagram Below Begins in Equilibrium