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, and ,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,  and  ,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 wage rate adjusts until the quantity of labor supplied equals the quantity of labor demanded, resulting in an equilibrium in the labor market. In the given diagram, the equilibrium occurs at a wage rate of $10 and a quantity of labor of 1000.

If the wage rate were to increase above $10, according to the labor demand curve, the quantity of labor demanded would decrease, while according to the labor supply curve, the quantity of labor supplied would increase. This would result in excess supply of labor and unemployment, as there would be more workers willing to work than the amount needed by firms, and the market wage rate would be driven down. Therefore, statement B is true.

The Labour Market in the Diagram Below Begins in Equilibrium