The aggregate demand curve for labor is the
A)vertical summation of the individual firms' demand curves.
B)horizontal summation of the individual firms' demand curves.
C)horizontal summation of all the individual supply curves.
D)vertical summation of the individual firms' supply curves.

Question

Quizplus · Accepted Answer

The aggregate demand curve for labor is the horizontal summation of the individual firms' demand curves. This is because each individual firm's demand curve is downward sloping, but when we add up all the firms' demand for labor, it results in a flat or horizontal aggregate demand curve. This is because in a competitive labor market, firms cannot individually affect the market wage rate and must accept it as given. Therefore, the quantity of labor demanded by all firms in the market is determined by the prevailing wage rate, resulting in a horizontal aggregate demand curve for labor.

The Aggregate Demand Curve for Labor Is the