Grape Price and Visa Rule
The question
The competitive labor market for vineyard grape pickers in the region of Sorrelton is in equilibrium. The world price of wine grapes rises sharply, and in the same harvest season a new national visa rule bars the seasonal foreign workers who had regularly joined Sorrelton's picking crews. Assume each picker's output per hour is unchanged, and show the effect on the labor market for grape pickers. Show the effect on the Labor Market graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Grape Price and Visa Rule: the worked answer
On the Labor Market graph, Labor demand (DL) shifts right and Labor supply (SL) shifts left.
Why Labor demand (DL) shifts right and Labor supply (SL) shifts left
In a competitive labor market the demand for labor is the marginal revenue product of labor, which equals the marginal product of labor times the price of the output. The higher world price of grapes raises every picker's MRP with output per hour held constant, so vineyards are willing to hire more pickers at every wage and labor demand shifts right. Separately, the visa rule removes people from the pool willing and able to pick at any given wage, which is a labor supply determinant, so labor supply shifts left. Both shifts push the wage in the same direction, up, so the equilibrium wage definitely rises. They push employment in opposite directions, because the demand shift raises the quantity of labor hired while the supply shift lowers it, so the change in equilibrium employment is indeterminate. Nothing in the stem says which shift is larger, so employment rises if the demand shift is larger, falls if the supply shift is larger, and is unchanged if the two are equal.
What happens to the equilibrium
The equilibrium wage definitely rises, while equilibrium employment is indeterminate and may rise, fall, or stay the same depending on which shift is larger.
The mistake students make on this one
The most common wrong answer treats both outcomes as determinate, usually 'wage up, employment down,' because students latch onto the visa rule as the headline event and quietly ignore the grape price. When two curves move, only the variable that both shifts push the same way has a determinate direction; here that is the wage, and employment must be stated as indeterminate. A second error is shifting only labor demand, on the reasoning that the wage increase will pull the missing workers back, but workers responding to a higher wage move ALONG the new supply curve rather than undoing the shift.
On exam day
On any combined-shift stem, draw both curves first, then test each outcome variable separately: if the two shifts push it the same way, commit to a direction, and if they oppose, write the word 'indeterminate' and name the relative size of the shifts as what it depends on.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Labor demand (DL) shifts right and Labor supply (SL) shifts left and every other curve on the Labor Market graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
More Labor Market scenarios
Last updated