The wage rate both balances the supply and demand for labour and equals the value of the marginal product of labour.

Question

Quizplus · Accepted Answer

The wage rate is determined by the market forces of supply and demand for labour. When the supply of labour equals the demand for labour, the wage rate is in balance. However, under perfect competition, the wage rate also corresponds to the value of the marginal product of labour, which is the additional value created by one extra unit of labour. The employer will continue to hire workers as long as their marginal product exceeds their wage rate. Therefore, the wage rate will be equal to the value of the marginal product of labour.

The Wage Rate Both Balances the Supply and Demand for Labour