Coal Country Wages
The question
As electric utilities switch to other energy sources, the market price of coal falls sharply. Show the effect of the lower coal price on the competitive labor market for coal miners, holding all else constant. 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.
Coal Country Wages: the worked answer
On the Labor Market graph, Labor demand (DL) shifts left.
Why Labor demand (DL) shifts left
A firm hires labor based on the marginal revenue product of labor, which equals marginal product times the price of the output. When the price of coal falls, each miner's MRP falls, so mining firms are willing to hire fewer workers at every wage. Miners' willingness to work at each wage is unaffected, so the supply of labor does not move.
What happens to the equilibrium
The equilibrium market wage falls and the level of employment decreases.
The mistake students make on this one
Students often shift labor supply left as well, picturing miners quitting once pay drops. Workers leaving because the wage fell is a movement along an unchanged supply curve, and moving that curve on the graph makes the answer wrong even though labor demand was shifted correctly.
On exam day
A leftward labor demand shift drives wage and employment DOWN together; if your finished graph shows the wage moving one way and employment the other, you shifted the wrong curve.
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 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.
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