Labour
Labour can be modelled with supply and demand curves.
Demand Shifts
- Demand for output of labour
- Educated and trained workers have greater demand
- Technology substituting or complementing labour
- Increase in firms raises labour demand
- Government regulation can change qty. demanded at some wage
- Other input price and availability
Supply Shifts
- Number of workers available
- Education level required
- Government policy
Four-Step Process
- Model the labour market prior to the change
- Determine if change impacts household supply of labour or firm demand of labour
- Determine if the change causes an increase of decrease
- Identify the new equilibrium
Minimum Wage
Since the minimum wage imposes a price floor, deadweight loss is created by regulations forcing firms to pay workers more for unskilled labour. Employers can simply decide to stop hiring at the low end as wages exceed value created.
Financial Markets
In financial markets, prices are the rates of return. Interest rate can be modelled as the price (y-axis) against the quantity of money (x-axis).
Laws governing against interest rates that are too high, called usury laws, are a form of price ceilings imposed to protect consumers.