When labour supply increases, the equilibrium wage falls and employment increases.

Question

Quizplus · Accepted Answer

This statement reflects the basic principle of supply and demand. When the labor supply increases (i.e. more people are willing and able to work), the supply curve shifts to the right. This leads to a surplus of workers, meaning there are more workers than jobs available at the current wage rate. To adjust for this surplus, employers will lower wages to attract more workers and be able to hire more. As a result, the equilibrium wage falls and employment increases.

When Labour Supply Increases, the Equilibrium Wage Falls and Employment