Labor Market drawing worksheet
The answer key prints on its own page, so hand out everything before it.
Labor Market drawing worksheet · problem 1 of 4
The competitive labor market for apple pickers in Orchardia is in equilibrium. The world price of apples rises sharply, and orchards can sell all of their output at the new price. Show the effect of the higher apple price on the labor market for apple pickers, holding all else constant.
Draw the initial equilibrium, show the change, and label every curve and both axes. Mark the new equilibrium.
Explain your reasoning:
Labor Market drawing worksheet · problem 2 of 4
Frostvale relaxes its immigration restrictions, and a large number of new working-age immigrants enter the labor force seeking jobs in the construction industry. Show the effect on the competitive labor market for construction workers. Assume worker productivity and the price of construction output are unchanged.
Draw the initial equilibrium, show the change, and label every curve and both axes. Mark the new equilibrium.
Explain your reasoning:
Labor Market drawing worksheet · problem 3 of 4
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.
Draw the initial equilibrium, show the change, and label every curve and both axes. Mark the new equilibrium.
Explain your reasoning:
Labor Market drawing worksheet · problem 4 of 4
The competitive labor market for warehouse workers in the town of Kesswell is in equilibrium. Distribution firms in Kesswell install new handheld sorting devices that let each worker pack noticeably more orders per hour. Assume the price of the firms' output and the number of people willing to work are unchanged. Show the effect on the labor market for warehouse workers.
Draw the initial equilibrium, show the change, and label every curve and both axes. Mark the new equilibrium.
Explain your reasoning:
Labor Market drawing worksheet: answer key
1. Apple Harvest Wages: laborDemand shifts right
In a competitive labor market, the demand for labor is the marginal revenue product of labor, which equals marginal product times the price of the output. A higher apple price raises each worker's MRP, so orchards are willing to hire more pickers at every wage. Workers' willingness to supply labor has not changed, so only the demand side of the market is affected.
The equilibrium market wage rises and the level of employment increases.
Watch for: Many students also shift labor supply right, reasoning that the higher wage will attract more pickers into the orchards. The wage increase is the RESULT of the demand shift, and workers responding to it move ALONG the existing supply curve; nothing changed how many people were willing to work at any given wage.
2. Frostvale Immigration Reform: laborSupply shifts right
The inflow of working-age immigrants increases the number of workers willing and able to work at every wage, which affects the supply side of the labor market. Because worker productivity and the output price are unchanged, the marginal revenue product of labor is unchanged, so firms' hiring schedule stays put. Only the quantity of labor offered at each wage has changed.
The equilibrium market wage falls and the level of employment increases.
Watch for: A common wrong answer shifts labor demand right too, on the logic that more immigrants means more customers and therefore more construction. This graph is one industry's labor market, not the whole economy: labor demand here is MRP, and the stem explicitly freezes both construction output prices and productivity, so MRP cannot move.
3. Coal Country Wages: laborDemand 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.
The equilibrium market wage falls and the level of employment decreases.
Watch for: 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.
4. Warehouse Automation Tools: laborDemand shifts right
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 new sorting devices raise each worker's marginal product, so with the output price held constant every worker's MRP rises and firms are willing to hire more workers at every wage. The devices do not change how many people are willing to work at each wage, so the labor supply curve stays put.
The equilibrium market wage rises and the level of employment increases.
Watch for: Many students shift labor demand LEFT because the stem mentions automation and they assume machines replace workers. Here the devices are held BY the workers and raise each worker's output per hour, so capital is a complement that raises MRP, not a substitute that displaces labor.