Diagrammatic Analysis of Labour Market Equilibrium
- Labour market equilibrium occurs where the demand for labour (DL) is equal to the supply of labour (SL)
- The DL is the demand by firms for workers
- The SL is the supply of labour by workers
- Individual firms are price takers in the labour market as they have to accept the wage rate that workers are being paid in the industry
- If they offer a lower wage, they will likely struggle to recruit workers
- If they offer a higher wage there will be a large number of workers applying to work there
In the labour market for graphic designers, the equilibrium wage rate is W and the equilibrium quantity is Q. At this point the DL = SL
Diagram Analysis
- The market for graphic designers is in equilibrium where DL = SL
- The equilibrium wage is W and the quantity of labour is Q
- There is no excess supply of labour
- There is no excess demand for labour